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Unaudited Results for the Six Months Ended 30 September 2018
OMNIA HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1967/003680/06
JSE code OMN ISIN ZAE000005153
("Omnia" or "the Group")
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018
FINANCIAL FEATURES
- Revenue up 12% to R8 654 million
- Operating profit down 75% to R124 million
- Loss after tax of R93 million
- Headline earnings per share of (140 loss) cents
- World record for largest detonator blast: 7 350 detonators
- Interim dividend declared 75 cents
- Oro agri acquisition effective from 1 May 2018
- Improved safety record with group RCR rate of 0.34
SUMMARY CONSOLIDATED INCOME STATEMENT
for the SIX MONTHS ended 30 SEPTEMBER 2018
Unaudited *Unaudited Audited
6 months 6 months 12 months
30 Sep 30 Sep 31 Mar
Rm 2018 2017 % 2018
Revenue 8 654 7 706 12 17 372
Cost of sales (6 669) (5 846) (14) (13 462)
Gross profit 1 985 1 860 7 3 910
Distribution expenses (1 067) (874) (22) (1 815)
Administrative expenses* (688) (561) (23) (1 233)
Other operating income 75 84 (11) 461
Other operating expenses (189) (24) (>100) (213)
Share of net profit of equity accounted investment 8 3 >100 46
Operating profit 124 488 (75) 1 156
Net finance expenses (218) (90) (>100) (270)
(Loss)/profit before taxation (94) 398 (>100) 886
Income tax expense 1 (113) >100 (222)
(Loss)/profit for the period (93) 285 (>100) 664
Attributable to:
Owners of Omnia Holdings Limited (94) 285 (>100) 666
Non-controlling interest 1 - 100 (2)
(Loss)/profit for the period (93) 285 (>100) 664
Earnings per share from (loss)/profit attributable
to owners of Omnia Holdings Limited (cents)
Basic earnings per share (138) 423 (>100) 985
Diluted earnings per share (131) 400 (>100) 927
Headline earnings per share (140) 420 (>100) 991
Diluted headline earnings per share (132) 397 (>100) 933
* Refer to page 10 for the note on Reclassification of R70 million of cost of sales to administrative
expenses
SUMMARY CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
for the SIX MONTHS ended 30 SEPTEMBER 2018
Unaudited Unaudited Audited
6 months 6 months 12 months
30 Sep 30 Sep 31 Mar
Rm 2018 2017 % 2018
(Loss)/profit for the period (93) 285 (>100) 664
Other comprehensive income,
net of tax
Currency translation differences 715 35 >100 (491)
Total comprehensive income for
the period attributable to 622 320 94 173
Owners of Omnia Holdings Limited 621 320 94 175
Non-controlling interest 1 - 100 (2)
SUMMARY CONSOLIDATED BALANCE SHEET
at 30 September 2018
Unaudited Unaudited Audited
6 months 6 months 12 months
30 Sep 30 Sep 31 Mar
Rm 2018 2017 2018
ASSETS
Non-current assets 8 138 5 118 6 181
Property, plant and equipment 5 073 4 326 4 588
Goodwill and intangible assets 2 814 690 1 363
Trade and other receivables 134 53 128
Investment accounted for using the equity method 88 40 71
Deferred tax assets 29 9 31
Current assets 11 655 9 350 9 221
Inventories 6 105 4 453 4 190
Trade and other receivables 4 557 4 055 3 686
Derivative financial instruments 57 50 103
Income tax assets 211 105 131
Cash and cash equivalents 725 687 1 111
Total assets 19 793 14 468 15 402
EQUITY
Capital and reserves attributable to the owners
of Omnia Holdings Limited 7 962 7 750 7 488
Stated capital 1 597 1 589 1 597
Treasury shares (123) (120) (123)
Other reserves 1 505 1 323 812
Retained earnings 4 983 4 958 5 202
Non-controlling interest 51 (3) (5)
Total equity 8 013 7 747 7 483
LIABILITIES
Non-current liabilities 3 559 829 1 924
Deferred tax liabilities 851 563 666
Trade payables and other liabilities 174 119 190
Interest-bearing borrowings 2 534 147 1 068
Current liabilities 8 221 5 892 5 995
Trade payables and other liabilities 5 247 3 920 3 378
Interest-bearing borrowings 576 24 15
Derivative financial instruments 129 13 32
Bank overdrafts 2 269 1 935 2 570
Total liabilities 11 780 6 721 7 919
Total equity and liabilities 19 793 14 468 15 402
Net working capital (Rm) 5 415 4 588 4 498
Net interest-bearing borrowings (Rm) 4 654 1 419 2 542
Short-term:long-term debt ratio (%) 53:47 93:7 71:29
Net asset value per share (rand) 118 114 108
Capital expenditure items (Rm)
Depreciation 200 180 384
Amortisation 88 24 62
Incurred 570 335 887
Authorised and contracted for 360 470 409
Authorised but not committed 341 796 403
SUMMARY CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 September 2018
Unaudited Unaudited Audited
6 months 6 months 12 months
30 Sep 30 Sep 31 Mar
Rm 2018 2017 2018
Cash generated from operations before working
capital movement 321 723 1 515
Utilised by working capital (926) (1 530) (1 648)
Increase in inventory (1 595) (1 212) (800)
Increase in trade and other receivables (340) (927) (503)
Increase/(decrease) in trade and other payables 1 009 609 (345)
Cash utilised by operations (605) (807) (133)
Net interest paid (218) (90) (293)
Taxation paid (145) (162) (341)
Net cash outflow from operating activities (968) (1 059) (767)
Cash outflow from investing activities (1 135) (335) (1 452)
Acquisition of business (565) - (578)
Purchase of property, plant and equipment (460) (226) (721)
Additions to goodwill, intangible and other assets (110) (109) (166)
Proceeds on disposal of property, plant
and equipment - - 13
Cash inflow/(outflow) from financing activities 1 861 (126) 601
Interest-bearing borrowings raised/(repaid) 1 965 (1) 911
Dividends paid (104) (125) (262)
Movement in treasury shares - - (3)
Acquisition of non-controlling interest - - (45)
Net decrease in cash and cash equivalents (242) (1 520) (1 618)
Net cash and cash equivalents at beginning of period (1 459) 262 262
Exchange rate movements 157 10 (103)
Net cash overdraft balance at end of period (1 544) (1 248) (1 459)
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2018
Attributable to the owners of
Omnia Holdings Limited
Non-
Stated Treasury Other Retained controlling
Rm capital shares reserves earnings interest Total
At 31 March 2017 (audited) 1 500 (120) 1 367 4 798 (3) 7 542
Recognised income and expenses
Profit for the period - - - 285 - 285
Other comprehensive income - - 35 - - 35
Transactions with shareholders
Ordinary shares issued 89 - (89) - - -
Ordinary dividends paid - - - (125) - (125)
Share-based payment -
value of services provided - - 10 - - 10
At 30 September 2017 (unaudited) 1 589 (120) 1 323 4 958 (3) 7 747
Recognised income and expenses
Profit for the period - - - 381 (2) 379
Other comprehensive loss - - (526) - - (526)
Transactions with shareholders
Ordinary shares issued 8 - (8) - - -
Ordinary dividends paid - - - (137) - (137)
Movement in treasury shares - (3) 4 - - 1
Share-based payment -
value of services provided - - 19 - - 19
At 31 March 2018 (audited) 1 597 (123) 812 5 202 (5) 7 483
Implementation of new standards
Change in accounting policy -
IFRS 9 (net of tax) - - - (21) - (21)
Recognised income and expenses
Loss for the period - - - (94) 1 (93)
Currency translation reserve - - 715 - - 715
Transactions with shareholders
Acquisition of a business - - - - 55 55
Ordinary dividends paid - - - (104) - (104)
Share-based payment -
value of services provided - - (22) - - (22)
At 30 September 2018 (unaudited) 1 597 (123) 1 505 4 983 51 8 013
RECONCILIATION OF HEADLINE EARNINGS
for the six months ended 30 September 2018
Unaudited Unaudited Audited
6 months 6 months 12 months
30 Sep 30 Sep 31 Mar
Rm 2018 2017 2018
(Loss)/profit for the year attributable to owners
of Omnia Holdings Limited (94) 285 666
Adjusted for:
(Profit)/loss on disposal/impairment of property, (1) (2) 7
plant and equipment
Insurance proceeds for replacement of property,
plant and equipment - - (3)
Headline earnings (95) 283 670
ADDITIONAL INFORMATION
for the six months ended 30 September 2018
Unaudited Unaudited Audited
6 months 6 months 12 months
30 Sep 30 Sep 31 Mar
000's 2018 2017 2018
Weighted average number of shares in issue 67 948 67 312 67 607
Weighted average number of diluted shares in issue 71 799 71 194 71 848
Number of shares in issue (excluding treasury shares) 67 948 67 900 67 948
NOTES
Basis of preparation
The summarised interim financial statements for the period ended 30 September 2018 (interim results) have
been prepared in accordance with the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards
Council, presentation and disclosures as required by IAS 34 Interim Financial Reporting, the Listings
Requirements of JSE Limited and the requirements of the Companies Act of South Africa, Act 71 of 2008, as
amended. The interim results do not include all the information required by IFRS for the full annual
financial statements. The preparation of these interim results was supervised by the Group finance director,
WG Koonin CA(SA).
The interim results have been prepared using accounting policies that comply with IFRS and which are
consistent with those applied in the preparation of the financial statements for the year ended
31 March 2018, unless otherwise stated.
The accounting standards, amendments to issued accounting standards and interpretations, which are not yet
effective, have not been adopted by the Group.
The board takes full responsibility for the preparation of the interim results and the results have not been
reviewed or audited by the Group's auditors.
Seasonal nature of the Group
The Group's interim results are impacted mostly by the seasonal nature of the revenue cycle in the
Agriculture division and the volatility of the South African rand against the US dollar. In southern Africa,
a large portion of fertilizer is purchased and utilised during the summer planting season which occurs from
around September/October through to January/February, depending on weather patterns and geographic location.
While other geographic areas have different planting seasons and revenue profiles, approximately half of the
Agriculture division's geographical concentration is based on revenue earned in South Africa.
Throughout the Group, the sale of a portion of inventory is referenced in US dollars and foreign exchange
exposure and is managed through a hedging program. As the exchange rate strengthens or weakens, the underlying
value of the inventory moves in an opposite direction to the value of the hedge. The two amounts do not offset
fully and net profits or losses may occur over the period of the hedging program. As the business has not yet
adopted hedge accounting, there is a timing mismatch between the accounting for foreign exchange gains or
losses and the unrecognised gains or losses in unsold inventory value that will be accounted for in the
following period as cost of sales. As a result, this created an element of volatility in the results for
the six month period under review. Notwithstanding the accounting mismatch between the two items in the
current period over the full year and annual business cycle, the hedging strategy remains appropriate
and is cost effective.
Fertilizer inventory in South Africa constitutes a large portion of the Group's overall inventory position.
Based on the anticipated demand, the production of fertilizer products at the Sasolburg facility ramps up from
approximately May until it peaks in December when the planting season is nearing the end. The delivery of
fertilizer to South African farmers commences with the start of the summer planting season in September/October
and peaks through December/January. By the end of the delivery cycle, stock levels have been reduced and the
level of bank debt and trade receivables are both at a peak. The full cash conversion cycle is typically completed
by March/April with the collection of debtors taking place in the latter part of the season. As a result,
inventory at the interim reporting date is substantially higher compared to financial year end, by which
time the inventory levels have been reduced through the full year cash conversion cycle.
The Group's ability to fund its peak inventory position has always been a key part of the business strategy.
Equally so, the Group's hedging strategy seeks to protect the value of inventory through the annual business
cycle on a cost-effective basis and to also deal with the volatility of the South African rand against the
US dollar. At the interim reporting date, net interest-bearing borrowing levels are significantly higher when
compared to March 2018, due to higher inventory levels, new debt facilities to replace cash used to fund the
two acquisitions and the construction of the nitrophosphate plant that is scheduled for completion by
March 2019.
Reclassification
The Group has reclassified R70 million in the 30 September 2017 financial results from cost of sales to
administrative expenses in line with a change in costing methodology adopted during the current period.
Changes in accounting policies
a) The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 April 2018 and elected to
use the modified retrospective approach on the adoption of IFRS 15 did not impact the Group's results as at
31 March 2018 or for the period ended 30 September 2018. The prior year accounting policies are set out
in detail in the 31 March 2018 annual financial statements.
b) The Group adopted IFRS 9 Financial Instruments from 1 April 2018 and prepared the 30 September 2018
interim results under IFRS 9. The Group elected to use the modified retrospective approach on transition.
As at 31 March 2018 an additional R28 million expected credit loss was recorded along with a deferred tax
asset of R7 million (based on an effective rate of 25.1%). This resulted in a net R21 million reduction
in opening retained earnings with no impact on the results for the six month period.
Segmental information
Accounting policies
Operating segments are reported in a manner consistent with the internal reporting provided to executive
management who makes strategic decisions. Executive management examines the Group's performance from both
a product and geographical perspective and identified the following segments within its business:
AGRICULTURE DIVISION
Agriculture RSA: This part of the business produces and trades in granular, liquid and speciality
fertilizers and offers agriculture services and solutions to a broad customer base including commercial
and small-scale farmers, co-operatives and wholesalers in South Africa.
Agriculture International: This part of the business offers agriculture services and solutions and produces
and trades in granular, liquid and speciality fertilizers as well as a range of agriculture biological
(AgriBio) products including biopesticides, biostimulants and biofertilizers, to a broad customer base.
Oro Agri was acquired with effect from 1 May 2018 and the results were consolidated from that date. Oro Agri
specialises in AgriBio products and complements the existing range of products sold by the Agriculture division.
Agriculture Trading: This part of the business relates to wholesale and trading of agriculture commodities
in South Africa and throughout Africa.
MINING DIVISION
Mining RSA: This segment comprises the Bulk Mining Explosives (BME) and Protea Mining Chemicals businesses
in South Africa. BME focuses on blasting agents and bulk emulsions, blended bulk explosives and is complemented
by innovative electronic detonator systems and blasting software that are crucial to cost-efficient and safe
rock breaking, non-electric detonators and other blasting products, equipment and accessories. Protea Mining
Chemicals specialises in chemicals solutions for processing plants at mines, focusing on enhancing yield and
the throughput performance of plants. The business also focuses on specialised services involving the
transportation and handling of hazardous chemical products for clients in the mining industry.
Mining International: This segment relates to the BME business outside of South Africa and Protea Mining
Chemicals business outside of South Africa.
CHEMICALS DIVISION
Chemicals RSA: This segment includes Protea Chemicals and Umongo Petroleum. Protea Chemicals is a
long-established and well-known manufacturer and distributor of specialty, functional and effect chemicals and
polymers. Chemicals RSA also provides services relating to the support in managing the supply of chemicals,
technical support and innovative supply chain solutions. This reportable segment relates to the South African
part of this business. Umongo Petroleum is a supplier of base oils, additives, process oils, lubricants and
other related chemicals and forms part of Chemicals RSA. Umongo Petroleum was acquired with effect from
1 December 2017 with the results consolidated from that date.
Chemicals International: This segment relates to the Protea Chemicals business outside of South Africa.
SEGMENTAL ANALYSIS
for the six months ended 30 September 2018
Gross Gross Gross Net Net Net
revenue revenue revenue revenue1 revenue1 revenue1
6 months 6 months 12 months 6 months 6 months 12 months
30 Sep 30 Sep 31 Mar 30 Sep 30 Sep 31 Mar
Rm 2018 2017 2018 2018 2017 2018
Agriculture division 4 328 3 843 9 248 3 622 3 192 7 965
RSA 2 494 2 279 5 526 1 788 1 632 4 243
International 1 403 1 019 2 509 1 403 1 019 2 509
Trading 431 545 1 213 431 541 1 213
Mining division 2 478 2 495 5 090 2 478 2 494 5 080
RSA 1 048 1 025 2 267 1 048 1 024 2 257
International 1 430 1 470 2 823 1 430 1 470 2 823
Chemicals division 2 591 2 023 4 382 2 554 2 020 4 327
RSA 2 430 1 795 3 925 2 393 1 792 3 870
International 161 228 457 161 228 457
Head office and elimination2 (743) (655) (1 348) - - -
Total 8 654 7 706 17 372 8 654 7 706 17 372
SEGMENTAL ANALYSIS
for the six months ended 30 September 2018 (continued)
Operating Operating Operating (Loss)/ Profit/ Profit/
profit/ profit/ profit/ profit (loss) (loss)
(loss) (loss) (loss) before tax before tax before tax
6 months 6 months 12 months 6 months 6 months 12 months
30 Sep 30 Sep 31 Mar 30 Sep 30 Sep 31 Mar
Rm 2018 2017 2018 2018 2017 2018
Agriculture division (37) 111 711 (163) 78 536
RSA (95) 9 420 (190) 2 256
International 57 94 275 27 74 271
Trading 1 8 16 - 2 9
Mining division 105 337 387 88 329 394
RSA 82 189 183 79 194 193
International 23 148 204 9 135 201
Chemicals division 65 65 146 35 58 88
RSA 39 36 58 21 32 3
International 26 29 88 14 26 85
Head office and elimination2 (9) (25) (88) (54) (67) (132)
Total 124 488 1 156 (94) 398 886
1 Net revenue - excludes intercompany transactions and other items eliminated on consolidation
2 Head office and elimination includes acquisition-related costs, employee share-based payment expenses and
interest on acquisition of Umongo Petroleum and Oro Agri
Revenue
Sale of products
The Group manufactures and sells:
- Granular, liquid and speciality fertilizers and AgriBio products and services from its Agriculture division
- Bulk emulsion, blended bulk explosives, blasting agents, accessories and services from its Mining division
- Specialty, functional and effect chemicals, polymers, base oils, additives, process oils and lubricants
from its Chemicals division
Sales from these products are recognised when control is transferred to the customer. Transfer of control is
dependent on each contract. In some contracts, transfer of control of the product takes place when the
product is collected from Group entities while in others it is upon delivery to the customer.
Faced with an increasingly competitive environment in the Agriculture segment, the Group differentiates its
products by offering value-added services and solutions to its customers. These services are meant to
complement the Group's products which, combined with technical knowledge, forms the basis of the value added
solutions provided to customers. These services are therefore not always sold separately and are interdependent
on the product being sold. In these cases, the Group has assessed the sale of products and services as a single
performance obligation.
Transport revenue relating to deliveries of products to customers is in some cases assessed to be a
separate, distinct performance obligation. This is applicable to the Agriculture, Chemicals and Protea Mining
Chemicals portion of the Mining division, as customers have the option of choosing a delivery service or
collecting the products themselves. Transport revenue is recognised when the delivery service has been
completed, however, it is sometimes included in the price of the product and not always as a separate sale.
Transport revenue relating to deliveries of explosives to customers in the BME sub-segment of the Mining
division are an integrated part of the sale of the product and has been assessed as not being a distinct
performance obligation.
Products are often sold with discounts based on aggregate sales as well as other factors over a prescribed
period. Revenue from these sales is recognised based on the price specified in the contract, net of the
discounts. Accumulated experience is used to estimate and provide for the discounts, using the expected value
method and revenue is only recognised to the extent that it is highly probable that a significant reversal will
not occur.
Within the Agriculture division, the Group provides extended credit terms that exceed 12 months to emerging
farmers. Interest is charged on these contracts and the significant financing component on these contracts is
recognised separately to revenue. The Group does not have any other contracts where the period between the
transfer of the promised goods to the customer and payment by the customer exceeds one year. As a consequence,
as allowed by the practical expedient in IFRS 15, the Group does not adjust any of the transaction prices for
the time value of money.
Sale of services
The Group provides the following services:
- Agriculture segment - Risk management, laboratory testing, soil analysis systems, resource utilisation
systems and expert recommendation reports are the services offered by the division to assist farmers to maximise
their crop yields whilst minimising their risk
- Mining segment - Logistics and specialised value-added services are offered by the division to its
customers in the mining industry
- Chemicals segment - Support in managing the supply of chemicals, technical support and innovative supply
chain solutions are offered by the division to provide customers with added benefits to assist their growth
Revenue from providing services is recognised in the accounting period in which the services are rendered.
Revenue is recognised based on the actual services provided to the customer as a proportion of the total
services to be provided because the customer receives and uses the benefits simultaneously. As allowed by
IFRS 15, the Group does not disclose the remaining performance obligations of service agreements as customers
are invoiced monthly on actual services provided and the consideration is payable when invoiced.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change.
Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the
period in which the circumstances that give rise to the revision become known by management.
Divisional analysis
Rm Products1 Transport Services Total
Agriculture 4 722 185 30 4 937
Mining 3 009 26 253 3 288
Chemicals 2 578 28 - 2 606
Gross revenue 10 309 239 283 10 831
Intergroup elimination (2 093) (84) - (2 177)
Total revenue third party 8 216 155 283 8 654
Timing of revenue recognition
- third party
Transfer at a point-in-time 8 216 155 - 8 371
Transfer over-time - - 283 283
Total revenue third party 8 216 155 283 8 654
Geographic analysis
South Africa 7 185 181 136 7 502
Rest of Africa 2 599 52 147 2 798
Rest of the world 525 6 - 531
Gross revenue 10 309 239 283 10 831
Intergroup elimination (2 093) (84) - (2 177)
Total revenue third party 8 216 155 283 8 654
1 The sale of products may also include transport and services as a composite price based on a total transaction
Implementation of IFRS 9
Classification, initial recognition and subsequent measurement
IFRS 9 introduces new classification categories for financial instruments. Under IFRS 9, financial assets
are classified by reference to the business model within which they are held and their contractual cash flow
characteristics, while the classification of financial liabilities remains largely the same as that under IAS 39.
The table below details the classification of the Group's financial assets and financial liabilities under
IFRS 9 as well as the previous classification under IAS 39. The classification of financial assets and financial
liabilities under IFRS 9 did not have an impact on the measurement in the interim results.
Financial assets IAS 39 classification IFRS 9 classification
Investments in equity Available-for-sale Fair value through other comprehensive income
instruments
Trade receivables Loans and receivables Amortised cost
Derivative instruments Fair value through profit/loss Fair value through profit/loss
Cash and cash equivalents Loans and receivables Amortised cost
Financial liabilities IAS 39 classification IFRS 9 classification
Interest-bearing borrowings Loans and receivables Amortised cost
Trade payables Loans and receivables Amortised cost
Derivative instruments Fair value through profit/loss Fair value through profit/loss
Bank overdraft Loans and receivables Amortised cost
Impairment
Before the adoption of IFRS 9, the Group calculated the allowance for credit losses using the incurred loss
model. Under the incurred loss model, the provision for impairment of trade receivables is made when there is
objective evidence that the Group will not collect the amount as per the original term of receivables.
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganisation and default or delinquency in payments were considered indicators that a trade receivable should
be impaired.
Under IFRS 9, the 'expected credit loss' or 'ECL model' is used to measure the impairment of financial assets,
so it is no longer necessary for a credit event to have occurred before a credit loss is recognised.
Financial assets subject to impairment under the ECL model are trade receivables and equity investments
classified at fair value through other comprehensive income.
The Group has elected the simplified approach in measuring ECL. This results in calculating lifetime ECLs
for trade receivables. In determining the ECL, the receivables are grouped based on similar risks. ECLs are
calculated by applying a historic loss ratio to the aged balance of trade receivables at each reporting date.
In instances where there was no evidence of historical write offs, management used their knowledge of the
business to determine the potential write off. The historic loss ratio is also adjusted for forward-looking
information to determine the lifetime ECL for the portfolio of trade receivables, taking into consideration
the potential growth or decline in the industry, inflation and stability of the sector.
The Group's impairment of trade receivables using the incurred loss model under IAS 39 for the year ended
31 March 2018 was R342 million. The ECLs for this period under IFRS 9 were calculated to be R370 million.
The additional R28 million ECLs and related deferred tax of R7 million (based on an effective rate
of 25.1%) was recorded as a net reduction of R21 million in retained earnings at 1 April 2018 according
to the modified retrospective approach.
Analysis of impairment of trade debtors as at 31 March 2018:
Past due Past due Past due More
Fully 31 - 60 61 - 90 91 - 120 than 120
Rm performing days days days days Total
Gross trade receivables 1 898 434 190 131 731 3 384
Less: Impairment - (4) (9) (2) (327) (342)
Additional ECL impairment adjusted (4) (13) (2) (7) (2) (28)
1 April 2018
Net trade receivables 1 894 417 179 122 402 3 014
Allowance for ECL as at 30 September 2018:
Past due Past due Past due More
Fully 31 - 60 61 - 90 91 - 120 than 120
Rm performing days days days days Total
Expected loss rate (%) 0.3 1.8 8.1 84.7 53.7 11.7
Gross trade receivables 2 764 283 99 131 598 3 875
Less: Loss allowance (8) (5) (8) (111) (294) (426)
Net trade receivables 2 756 278 91 20 304 3 449
Contingent liabilities
Legal proceedings
The Group is involved in various legal proceedings, and as proceedings progress management raises provisions
where appropriate. Litigation, current or pending, is not likely to have a material adverse effect on the
Group and therefore no specific adjustments have been made in the interim results.
Guarantees
Certain Group companies have guaranteed the fulfilment of various subsidiaries' obligations in terms of
contractual agreements. These companies have also guaranteed the borrowing facilities and banking arrangements
of certain subsidiaries.
Environmental rehabilitation provisions
The Group is continuously assessing the need and possible quantification of environmental rehabilitation
provisions relating to its various sites.
Acquisition of business
On 1 May 2018, Omnia has, through its wholly owned subsidiaries, acquired 100% of the ordinary shares of Oro
Agri SEZC Limited and its subsidiaries, collectively referred to herein as Oro Agri. Oro Agri has been
consolidated into the Group financial results from this date and forms part of the Agriculture division.
Oro Agri is an international company involved in the research and development, production, distribution and
sales of a unique range of patented AgriBio products. The key product ranges include biopesticides,
biostimulants and biofertilizers as well as, adjuvants, crop protection products, liquid foliar fertilizers
and soil conditioners. Clients include farmers with large-scale agriculture applications across all row,
stone fruit, pasture and other crop types, as well as smaller pastures, lawn and garden applications.
For the five months ended 30 September 2018, Oro Agri contributed revenue of R279 million and reported an operating
loss of R7 million to the Group's interim results. The Oro Agri reported operating loss has been reduced by the
amortisation of R41 million for the various intangible assets identified as part of the purchase price allocation.
In determining these amounts, management has assumed that the fair value adjustments, determined provisionally,
that arose on the date of acquisition, would have been the same if the acquisition had occurred on 1 April 2018.
If the acquisition had occurred on 1 April 2018, management estimates that the consolidated revenue would have
been R321 million and the consolidated loss for the six-month period would have been R6 million.
a) Accounting for the acquisition of a subsidiary
USDm Rm
Cash - paid on 26 April 2018 54 671
Deferred consideration - paid on 5 November 2018 i) 31 380
Deferred consideration - payable on 5 May 2020 i) 14 176
Fair value of consideration transferred1 99 1 227
Fair value of tangible assets and liabilities (23) (290)
Fair value of intangible assets acquired in the (55) (681)
business combination
Technology and product registration ii) (66) (813)
Distribution network ii) (2) (28)
Brands ii) (7) (93)
Deferred tax on the above 20 253
Fair value of contingent liabilities and related indemnification assets
Contingent liability - leakage costs2 iii) (5) (62)
Indemnification asset - leakage costs2 iii) 5 62
Company transaction costs liability iii) (1) (6)
Indemnification asset - company transactions costs iii) 1 6
Indirect non-controlling interest iv) 4 55
Goodwill v) 25 311
1 Total purchase consideration of USD100 million adjusted on a fair value basis, based on the timing of certain
amounts in terms of the total purchase consideration.
2 'Leakage costs' refer to the terminology in the sales and purchase agreement to describe those costs paid
by the business from the signature date of the agreement to the effective date when the transaction closed.
The cash purchase price is adjusted in accordance with the leakage cost formula provided for in the agreement
and any leakage cost is deducted from the total amount due to the sellers.
i) Deferred consideration
The remainder of the sales price consists of deferred consideration of USD31 million, which was paid on
5 November 2018 and has been discounted at the contracted rate of 3%. This consideration may be reduced to recover
post-acquisition leakage costs and transaction fees respectively.
The remaining USD14 million relating to the retention mechanism to cover any unknown and additional
liabilities is payable on 5 May 2020. This amount has been discounted at the contracted rate of 3%. In addition,
this consideration may be reduced to recover any post-acquisition leakage costs incurred up to and including
5 May 2020.
ii) Intangible assets
Excess consideration, after taking into account the fair value of the tangible assets and liabilities of Oro
Agri, was allocated to the following intangible assets using the valuation techniques detailed below:
- For the technology and product registrations, a discounted cash flow method was used. The estimated useful
life for product registrations is 10 years. The discount rate of the product registrations was based on an
assessment of the risk profile of the product registrations relative to the risk profile of the overall business
of which the asset was part. Overall weighted average cost of capital (WACC) was adjusted by adding a 1.0%
premium, and this adjusted discount rate was applied to product registrations
- For the distribution networks, a distributor method was used. Based on the attrition assumptions, the term
of each agreement, the probability of renewal of each agreement and management's understanding of the
relations, the estimated useful life of the distribution network is 12 years. The overall WACC was adjusted by
adding a premium of 2.0% and this adjusted discount rate was applied to the distribution agreements. WACC was
calculated based on estimates of required equity rates of return and the after-tax cost of interest-bearing
borrowings
- For the brand, the relief-from-royalty method was used. The estimated useful life for product registrations is
10 years. The historical longevity of the brand supports this representation as the Oro Agri brand has been in
existence since 2009. The discount rate of the brand was based on an assessment of the risk profile of the brand
relative to that of the overall business of which the asset was part. Overall WACC was adjusted by adding a 2.0%
premium and this adjusted discount rate was applied to the brand
iii) Contingent liabilities and indemnification assets
The Group identified and recognised contingent liabilities (leakage) relating to litigation and potential
additional taxes due for Federal and State Income Tax in the USA as well as product registration costs as part of
the fair value of the assets and liabilities of Oro Agri at the date of acquisition.
The sellers of Oro Agri have agreed to indemnify the Group for any leakage costs for 24 months after the
date of acquisition. The indemnification asset has been recognised as part of the fair value of the assets and
probable liabilities at the date of acquisition.
iv) Indirect non-controlling interest
Indirect non-controlling interests relate to a non-controlling interest in Oro Agri Brazil, a subsidiary of
Oro Agri.
v) Goodwill
Goodwill is presented after including the workforce in place as the workforce acquired does not qualify for
separate recognition.
vi) Acquisition-related costs
The Group incurred total acquisition-related costs of approximately R36 million on legal and consulting fees and
due diligence costs. Certain of these costs have already been incurred in the previous financial year amounting
to R10 million and on closing, a further R26 million was due. These costs have been included as administrative
expenses in the income statement.
vii) Measurement period adjustments
If new information obtained within one year of the date of acquisition about facts and circumstances that
existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions
that existed at the date of acquisition, then the accounting for the acquisition will be revised.
b) Cash flows on acquisition of the subsidiary
During the period the Group obtained control of Oro Agri. The cash paid to 30 September 2018 on the
acquisition of Oro Agri is disclosed below:
USDm Rm
Property, plant and equipment 11 139
Intangible assets 75 934
Investments 1 6
Inventories 6 78
Trade and other receivables 20 244
Cash and cash equivalents 7 90
Loans and borrowings (13) (158)
Deferred tax liabilities - tangible assets * (3)
Deferred tax liabilities - intangible assets (20) (253)
Trade and other payables (9) (106)
Contingent liability - leakage (1) (16)
Indemnification asset - leakage 1 16
Company transaction costs liability (1) (6)
Indemnification asset - company transactions costs 1 6
Total fair value of identifiable net assets acquired 78 971
Less: Indirect non-controlling interest (4) (55)
Add: Goodwill 25 311
Total consideration paid 99 1 227
Less: Cash and cash equivalents of subsidiary on acquisition (7) (90)
Less: Deferred consideration payable (45) (556)
Less: Foreign exchange gains on timing of cash payment - (20)
Cash paid to obtain control of Oro Agri 47 561
* Less than USD1 million
Post Balance Sheet events
Protea Chemicals embarked on an organic growth strategy over the past two years. Growth was intended to be
obtained through organic growth in South Africa, with the addition of certain product lines and entering
select new territories in Africa. While certain growth was achieved on an overall basis in parts of Africa,
South Africa's growth and margin aspirations were not achieved. The economic conditions in the region and
severe competitive pressure further impacted the business negatively and margins deteriorated to the point
that the current business model and growth strategy is not considered appropriate in the current
economic environment.
As a result of the current macro-economic environment in South Africa and in line with the revised Group
strategy, Protea Chemicals' strategy and business model are being reviewed and realigned to create a more
focused business for the future. This process resulted in the commencement of an exercise post period end
to restructure the business in order to optimise and align the structure with the revised strategy.
The restructuring and associated costs will be completed by financial year-end, which will also impact
revenue with the discontinuing of non-profitable product lines. The benefit of these interventions is
only expected to improve the financial performance of the business in the next financial year.
COMMENTARY
The Group made a loss after tax of R93 million for the first half of the 2019 financial year compared to a
profit after tax of R285 million for the same period in the prior year. Due to the cyclical nature of the
Group's Agriculture division and the unrealised mark-to-market foreign exchange losses on the derivative
instruments that will be offset in the second half of the year when the offsetting profit in inventory
is realised, this is not representative of the full year results. Operating profit for the six months
was R124 million compared to R488 million in the prior period.
The key factors affecting the profitability in the three main divisions were as follows:
- Agriculture division - in South Africa the planting season that typically commences in September, was
delayed again due to seasonal factors and commenced after period end. The majority of fertilizer deliveries take
place in the second half of the year. Lower fertilizer margins reflect the financial pressure being experienced
by farmers and the competitive environment in the sector. The Agriculture International division also
experienced a delayed start to the planting season in the various geographies in which it operates as well as
increased mark-to-market foreign exchange losses in the current six month period which may be offset against
probable future transactions
- Mining division - the overall margin remains under pressure due to contract pricing mechanisms linked to the lower
international ammonia price in the current period, competitive prices for detonators and accessories due to slower
demand resulting in excess production as well as higher overheads relative to the lower than planned explosives
offtake by mining customers. A provision was raised in the period for a client in Angola that defaulted on the
payment arrangements made at the end of the previous financial year. Ongoing efforts to collect the outstanding
amount continue. Obsolete stock was also written off due to changes in blasting technologies and client
requirements. Foreign exchange losses based on movements in various currencies in which the Group transacts
reduced the profitability of Mining International. A portion of these will be offset by transactions in the
second half of the financial year
- Chemicals division - the South African manufacturing sector remains constrained with a significant
reduction in production volumes and demand due to the difficult economic conditions. Slowdown of the business
relative to the current overhead structure was not sustainable and has resulted in the commencement of a
restructuring of Protea Chemicals post period end. Umongo Petroleum faced headwinds due to the slow down in
the manufacturing and mining sectors in South Africa, resulting in lower demand which was temporary, but
affected the profitability in this period
The Group completed two large acquisitions, namely Umongo Petroleum and Oro Agri, that closed effective
1 December 2017 and 1 May 2018 respectively. The earnings from these acquisitions for the current six-month
period were offset by the amortisation of the intangibles identified from the acquisitions. Overall, both
businesses performed well given the current economic climate and factors affecting the sectors in which they
operate. Both businesses have a seasonal element, with improved results expected in the second half of
the year.
Net interest paid is 142% higher than the comparative period due to the debt raised to replace cash used to
finance the two acquisitions and the overall increase in working capital levels, higher underlying commodity
prices, weaker exchange rates and the inclusion of working capital from the two acquisitions for the first
time. The construction of the nitrophosphate plant, scheduled for completion by 31 March 2019, was also
financed with debt however, interest incurred during the construction phase has been capitalised to the
cost of the asset.
Balance sheet
- R4.7 billion (HY2017: R1.4 billion) of net interest-bearing borrowings at 30 September 2018 compared to
R2.5 billion at 31 March 2018 due to the additional working capital as a result of higher pre-season fertilizer
inventory levels, the utilisation of available cash to fund the acquisition of Oro Agri that closed on 1 May 2018,
financing of the nitrophosphate plant and lower profitability
- The Global Credit Rating issued in October 2018 remained unchanged at A- (Long Term) and A1- (Short Term)
with a stable outlook
Operational
- Level 3 BBBEE rating remained unchanged with the 2018 rating completed
- RCR was 0.41 (HY2018: 0.40) at period end, reducing to 0.34 at the date of publication
Dividends
An interim dividend of 75 cents per share was declared, down 63% (HY2018: 200 cents).
Economic Environment
The South African rand was volatile over the six-month period and weakened considerably when compared to the
US dollar, some 20% weaker from R11.85 at 31 March 2018 to R14.17 at 30 September 2018. The average exchange rate
against the US dollar for the current six-month period was 2% weaker at R13.49 compared to R13.22 in the
comparative period.
Although farmers in South Africa benefitted from the weaker rand that resulted in higher crop prices, this
was offset by higher diesel and input costs due to the combined effect of weaker exchange rates and higher oil
prices. Under this scenario, customers remain under pressure as they continue to manage within a volatile and
competitive market. With the 2018 harvesting in South Africa's summer rainfall area completed, the country has
yielded a good crop, although lower than the prior season. The weather patterns over most parts of South Africa
remain concerning and the reported volume of seed sales are considerably lower than the prior period. The land
expropriation issue continues to weigh on the sentiments of the sector causing further uncertainty.
The economic situation in Zimbabwe remains a major concern, with fears of a renewed hyperinflationary
environment and lack of access to foreign exchange causing major difficulty in the general day-to-day functioning
of the economy. Omnia has a sizeable agriculture business in Zimbabwe and continues to adjust the business
model to deal with these issues. Market conditions in Zambia remain under pressure with increased political
interference across many sectors. More recently, the Kwacha weakened against the US dollar, posing foreign currency
risk for sales in the local currency. Early signs that a lack of liquidity of US dollars is starting to emerge
is cause for concern. The prices of crops in Zambia have started increasing, which is a good indicator that
the forthcoming planting season should be strong. In Australia, the weakening Australian dollar had a positive
impact on agriculture product exports from Australia to other countries. In Brazil, the season has been slower
than planned in the first six months. Based on the recent trade war between the USA and China, this bodes
well for increased agriculture exports from Brazil to China, replacing volumes previously supplied by the USA.
The South African mining sector continues to contract, particularly due to the poor economics in the deep
level underground mining. This has a considerable impact on the profitability of gold and platinum mines, many
of which are uneconomical and face closure in the short term. Due to higher input costs, exchange rate volatility,
uncertainty regarding the mining charter and general political uncertainty in the country, local and foreign
investment in the sector continues to contract. Mining production output of all commodities fell between 4%
to 22% period-on-period, with the exception being manganese. Certain countries in Africa continue to move
forward in terms of new mining developments and expansion of existing operations which is encouraging.
In Australia, miners are benefitting from the weaker currency, resulting in increasing margins with
products priced in US dollars.
The explosives market remains highly competitive with aggressive pricing by new foreign entrants in South
Africa offering a lower quality product in this environment. BME has not lost any customers however,
offtake at certain customers has reduced due to various mine-related operational factors. In BME's
primary markets, ammonium nitrate remains in over-supply, putting further pressure on explosive prices
and exerting pressure on overall margins and profitability throughout the entire explosives industry.
Commodity prices remain volatile with gold staying reasonably steady and platinum under significant
pressure due to the change in market requirements for the metal. The ongoing demand for key commodities
(cobalt and lithium) used in batteries continues to be driven by the electric vehicle industry, mobile
devices and other such products that use new technology-based batteries. The demand for higher quality
coal remains buoyed by newly implemented environmental regulations in China that limit the use of poor
quality coal and ongoing demand from emerging markets. More recently, the reduction in oil price will
reduce costs in the mining industry and will potentially impact negatively on commodity prices in the
near term.
In Q2 CY2018, South Africa entered its first recession since the global financial crisis in 2008 as GDP
contracted 0.7% following a revised decline of 2.6% in Q1 CY2018 that was significantly worse than expected.
Although the recession is not expected to continue beyond the end of CY2018, any rebound looks set to be weak,
given various factors including the pending local elections in May 2019. The domestic manufacturing sector
remains stressed amidst weak demand, the continued de-industrialisation of production capacity, rising production
costs, weak consumer demand and competitive pressure from imported finished goods.
The trade war emanating from the USA against China has resulted in higher tariffs imposed by the USA on
goods imported from China. As a result, macro-economic supply/demand patterns across the globe have started to
change and will potentially result in an increasing cost of doing business. The USA continues to increase oil
production and the decision to re-impose sanctions on Iran has created further volatility in the price of oil.
The strength of the US dollar against most major currencies and the prospect of further increases in the US
interest rates continues to impact on global trade and in particular, emerging market currencies.
The decision to continue to diversify the Group's revenue outside of South Africa remains a key objective.
Generally, trading conditions remain challenging, with a number of macro-economic factors being difficult to
predict and plan for. Currency volatility and political uncertainty in South Africa are significant factors
affecting the business. In light of these issues, the Group continues to review its strategy to counter the
effect of these changes.
FINANCIAL REVIEW
Income statement
Group revenue for the six-month period increased by 12% to R8 654 million (HY2018: R7 706 million) due to
the first-time inclusion of Umongo Petroleum of R559 million (six months) and Oro Agri of R279 million. (five
months from 1 May 2018) Excluding the acquisitions, revenue was up 1% based on a weak performance across most
of the business. The Mining and Chemicals divisions remained flat due to lower volumes sold and pricing pressure.
Agriculture RSA had a slower than planned start to the year with the planting season delayed once again due to
late rains with volumes up 4% and prices up 6% period-on-period. Farmers continue to face lower international
crop prices and other challenges with cost pressures caused by exchange rate volatility that impact input costs,
especially fertilizer and diesel. Agriculture International increased sales in Zimbabwe and Zambia partially
offset by lower demand for specialty products from Australia across the various markets. Agriculture Trading
reduced revenue by 20% in line with a strategy of improving the quality of the business to focus on improving
margin.
Gross profit for the six-month period increased by 7% to R1 985 million (HY2018: R1 860 million).
Excluding the new acquisitions, gross profit decreased by R120 million and was flat period-on-period.
The gross profit margin percentage decreased to 22.9% (HY2018: 24.1%) and excluding new acquisitions to
22.3% (HY2018: 24.1%). Gross profit was impacted by margin pressure across all businesses.
Distribution expenses for the six-month period increased by 22% to R1 067 million (HY2018: R874 million) or
10% excluding the new acquisitions. This was driven by higher fuel prices that increased on average by 16%,
period-on-period and average exchange rates for the six month period that weakened by 2% against the US dollar.
These increases were partially offset by the lower volumes sold in the various divisions.
Administrative expenses for the six-month period amounted to R688 million (HY2018: R561 million) and
was 23% higher compared to the prior period, or 8% higher excluding the acquisitions. The increase in
administrative expenses was driven by further provisions for bad debts related to an Angola debtor in the
Mining division that defaulted on the payment obligation made at financial year end. Excluding the amount
related to the two acquisitions not in the prior period and the additional bad debt provision, administrative
expenses increased by 4% period-on-period, marginally below the South African inflation. A portion of the
administrative costs are in US dollars that in rand terms were higher due to the weakened exchange rates
period-on-period.
Net other income/(expenses) for the six-month period amount to a R114 million expense (HY2018:R60 million
income). Included in the current reporting period were the following items: R62 million relating to the
amortisation of intangibles arising from the acquisition of Oro Agri (R41 million) and Umongo Petroleum
(R21 million) and R52 million income from the reversal of a portion of the earnout provision for Umongo
Petroleum in year 1 (R36 million) and year 2 (R16 million) as a result of stretch targets not being met due
to the decline in market activity and the slower than planned start up in the African countries outside of
South Africa. The reduction in the earnout payment effectively reduces to purchase consideration. Foreign
exchange losses in the current period of R102 million (HY2018: R43 million gain) includes R80 million loss
(HY2018: R68 million gain) in unrealised mark-to-market adjustments. This loss will be substantially offset
by the unrecognised gains in Agriculture's inventory not yet sold at period end that will be realised in the
second half of the year. Excluding these amounts, the net other income/(expenses) in the current period of
R2 million compares to the net other income/(expenses) in the prior period of R17 million.
Operating profit for the six-month period of R124 million (HY2018: R488 million) was down 75% period-
on-period, resulting in an operating profit margin of 1.4% (HY2018: 6.3%). The Agriculture division
reported a R37 million operating loss (HY2018: R111 million profit), driven by the delayed start to the
planting season, margin pressure and the market-to-market unrealised foreign exchange losses on hedging
the unsold inventory position at period end. The Mining division returned a lower operating profit of
R105 million (HY2018: R337 million profit), down 69% period-on-period including an additional bad debt
provision, inventory write-offs and unrealised foreign exchange losses based on the higher exchange rate
at period end. Costs associated with setting up new operations in other markets as part of the division's
international growth strategy, continues to gain momentum and generate new volumes sold post period
end. Overall, margins remain under pressure across the various geographies that the business operates in
based on the products sold, the low ammonia price and competitive pressure. The Chemicals division's
operating profit of R65 million (HY2018: R65 million profit) remained unchanged from the prior period.
The results include six months of earnings contribution from Umongo Petroleum that were offset by the
amortisation of intangibles arising on acquisition. Tight cost control was not sufficient to offset margin
pressure and lack of demand as the South African economy slowed down rapidly in the six months with
the manufacturing and mining sectors contracting period-on-period. Protea Chemicals has commenced a
restructuring exercise to address the weaker trading outlook going forward. The Chemicals International
business also faced headwinds, with demand for specialised products and services in the Oil & Gas sector
slowing down as well as increased competition.
Net finance expenses for the six-month period of R218 million (HY2018: R90 million) increased by 142%
due to increased levels of working capital based on the two acquisitions accounted for the first time,
higher US dollar prices for raw materials, higher underlying commodity prices, weaker exchange rates,
using existing cash to fund acquisitions, the change in mix between short and long term debt marginally
increasing costs, lack of cash liquidity in certain jurisdictions to repatriate funds to offset borrowings
on a Group level and lower profitability. Cash of R1 276 million was used to fund the acquisitions made up
of payments for Umongo Petroleum of R625 million (effective 1 December 2017) and Oro Agri of R651 million
(effective 1 May 2018). Excluding R70 million of interest incurred on new facilities to replace cash on hand
utilised to fund the two acquisitions, the pro forma interest for the six months of R148 million was up 64%
period on period.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) for the six-month period was 40%
lower at R412 million (HY2018: R692 million).
Income tax expense of R1 million (income) for the six-month period due to the reported loss compared to an
income tax expense of R113 million for the prior year six-month period. The effective tax rate in the prior
period was 28.4% and the tax rate for the full year is expected to normalise to similar levels.
Other comprehensive income net of tax was higher period-on-period, due to a weaker rand in the current
year increasing the foreign currency translation reserve by R715 million (HY2018: R35 million increase).
The majority of the foreign-currency translation reserve relates to the revaluation of the US dollar
denominated balance sheet from one financial reporting period to the next. Over the six months
since financial year end, the rand weakened by 20% against the US dollar from R11.85 at 31 March 2018 to
R14.17 at 30 September 2018.
Headline earnings per share of (R1.40 loss) (HY2018: R4.20 earnings) was lower period-on-period.
Balance sheet
The balance sheet continues to strengthen with total assets increasing by 37% or R5 325 million to
R19 793 million (HY2018: R14 468 million). The net increase in non-current assets of R3 020 million to
R8 138 million (HY2018: R5 118 million) is largely attributable to the inclusion of goodwill of R503 million
and intangible assets of R1 376 million arising from the acquisition of Umongo Petroleum and Oro Agri
respectively. The intangible assets identified in the purchase price allocation included product registrations,
distribution contracts, customer relationships and brands with useful lives of between 10 to 15 years that
are amortised over these time periods. During the six month period, capital expenditure of R570 million
(HY2018: R335 million) was incurred, based on planned capital projects including R271 million (HY2018:
R22 million) incurred on the construction of the new nitrophosphate plant and R110 million (HY2018:
R109 million) of intangible assets, of which R74 million (HY2018: R30 million) relates to the
implementation of the Microsoft Dynamics AX ERP system and related IT projects. Capital expenditure
remains tightly controlled and adjusted where appropriate in line with the current financial
performance and debt levels of the Group.
The increase in current assets of R2 305 million to R11 655 million (HY2018: R9 350 million) was largely
attributable to the R1 652 million increase in inventories, the majority of which relates to the Agriculture
division increased holding of R1 021 million due to the timing of the planting season, higher raw material costs
and the first time inclusion of Oro Agri's inventory of R101 million not in the prior period. The Mining
division held R148 million higher inventory period-on-period due to a mixture of higher prices as a result of the
weaker South African rand, lower than expected sales, timing of deliveries period-on-period and the lead times
for product to key customers in Africa resulting in higher stock on hand required. The Chemicals division held
R414 million higher inventory with R263 million attributable to the acquisition of Umongo Petroleum not in the
prior period, strategic stock positions taken on certain new products ranges that reduced after period end
and slow offtake by customers due to plant shut downs. Buying processes, replenishment decisions and sales
strategies continue to be reviewed and realigned to ensure that a reduction in net working capital is
achieved by financial year-end. Overall, for the six months the underlying raw material prices denominated
in US dollars increased by 10% and the average exchange rate increased by 2% period-on-period. Excluding
the R364 million of inventory for Oro Agri of R101 million (HY2018: Rnil) and Umongo Petroleum R263 million
(HY2018: Rnil), the net increase in inventory period -on-period was R1 288 million. Trade and other receivables
increased by R502 million to R4 557 million (HY2018: R4 055 million), including trade receivables for Oro Agri
R254 million (HY2018: Rnil) and Umongo Petroleum of R223 million (HY2018: Rnil). Excluding these amounts,
the period-on-period increase was up R25 million.
Total liabilities at 30 September 2018 were R11 780 million (HY2018: R6 721 million), up R5 059 million or
75%, mostly due to additional gearing following the use of cash to fund the two acquisitions, funding the
construction of the nitrophosphate plant, increased working capital levels due to seasonal timing, accounting
for the acquisition of Umongo Petroleum and Oro Agri for the first time and higher underlying raw material costs
resulting in higher trade payable balances.
Current liabilities increased by R2 329 million or 40% to R8 221 million (HY2018: R5 892 million).
Interest-bearing borrowings and bank overdrafts increased to R2 845 million (HY2018: R1 959 million) compared to
R2 585 million at 31 March 2018.
Non-current liabilities increased by R2 730 million to R3 559 million (HY2018: R829 million). Interest-
bearing borrowings increased to R2 534 million (HY2018: R147 million) compared to R1 068 million at 31 March 2018.
Net interest-bearing borrowings was R4 654 million at 30 September 2018 (HY2018: R1 419 million). Total
interest-bearing borrowings and bank overdrafts increased to R5 379 million (HY2018: R2 106 million) compared to
R3 653 million at 31 March 2018. The gearing profile between short- and long-term debt has changed as follows:
30 September 2018 53%:47%; 31 March 2018 71%:29% and 30 September 2017 93%:7%. The change in split between the
short- and long-term funding obligations reflects the change in the underlying funding requirements and a
decision to secure all facilities ahead of a possible ratings downgrade for South Africa in late 2017, which
remains an ongoing risk at this stage. The ratio will continue to be optimised based on the underlying funding
requirements and the cost of funding.
Total equity increased to R8 013 million (HY2018: R7 747 million). The movement comprises the net loss after
tax of R93 million (HY2018: R285 million profit) and an increase in the foreign currency translation reserve
by R715 million (HY2018: R35 million), non-controlling interest acquired as part of the Oro Agri transaction
of R55 million (HY2018: Rnil) and dividends paid of R104 million (HY2018: R125 million). The significant
increase in the foreign currency translation reserve is due to the 20% decline in the closing balance sheet
exchange rate against the US dollar from R11.85 at 31 March 2018 to R14.17 at 30 September 2018.
Cashflow Statement
Cash utilised in operating activities for the six-month period of R605 million (HY2018: R807 million) was
R202 million lower than the comparative period. Cash generated from operations before working capital movements
of R321 million (HY2018: R723 million) was R402 million lower period-on-period. This was offset by lower cash
utilised in working capital of R926 million (HY2018: R1 530 million), which was R604 million lower
period-on-period.
Net cash utilised by operations for the six-month period of R968 million (HY2018: R1 059 million) was
R91 million lower than the comparative period. Net interest paid was R128 million higher period-on-period at
R218 million (HY2018: R90 million) and taxation paid was marginally lower by R17 million period-on- period
at R145 million (HY2018: R162 million).
Cash outflow from investing activities of R1 135 million (HY2018: R335 million) was higher due
to the increase in expenditure that was in line with the business plan including the construction of the
nitrophosphate plant of R271 million (HY2018: R22 million) and other capital expenditure of R190 million
(HY2018: R206 million), R110 million (HY2018: R121 million) capitalised as intangible assets of which
R74 million (HY2018: R41 million) relates to the implementation of the Microsoft Dynamics AX ERP system
and other IT related projects and R561 million (HY2018: Rnil) for the first tranche of USD54 million funded
from cash to acquire a 100% interest in Oro Agri and R4 million for the part payment of the retention
amount relating to the earnout as part of Umongo Petroleum acquisition.
Cash inflow/(outflow) from financing activities of R1 861 million inflow (HY2018: R126 million outflow) was
higher due to an increase in new long-term interest-bearing borrowings, financing of R1 965 million raised to
fund capital expenditure and other working capital requirements.
DIVISIONAL REVIEW
AGRICULTURE DIVISION
Omnia's Agriculture division, comprising Fertilizer RSA, Fertilizer International (including Oro Agri) and
Agriculture Trading, is the market leader in its field in South Africa and southern Africa.
The Agriculture division's net revenue increased by 13% to R3 622 million (HY2018: R3 192 million)
predominantly due to the inclusion of R279 million of revenue from Oro Agri from 1 May 2018 or by 5% excluding
this amount. Agriculture RSA increased revenue by 10% period-on-period on the back of a 4% increase in volumes
and 6% increase of average selling prices. Agriculture International, excluding the impact of Oro Agri, increased
revenue by 10% mostly driven by the increase in average selling prices and the higher SA rand:US dollar exchange
rate. Agriculture Trading reduced revenue by 20% in line with a strategy of focusing on improving the quality
of the business. In addition the business experienced some delays in shipments resulting in revenue being
deferred into the second half of the year. Overall, the increase in revenue was satisfactory given the market
conditions and timing of sales relative to the planting season.
The total operating loss of R37 million (HY2018: R111 million profit) reflects the highly cyclical nature of
the business linked to the agriculture cycle, the delayed start of certain planting seasons and the
volatility in the SA rand:US dollar exchange rate. The latter resulted in R55 million in foreign exchange losses
(HY2018: R33 million foreign exchange gains) for the six-month period, a portion of which will be offset in the
next six-month period when the unrecognised profit in unsold inventory and other transactions are realised. The
benefit of an improved ammonia:urea ratio in the six-month period on the gross margin was offset by lower
fertilizer prices due to the financial position of farmers who are under pressure. In terms of achieving the
overall margin guidance for the year, this is more appropriately measured on the full year results but remains
under pressure at this point. Agriculture's inventory is well priced and below current replacement value. This
bodes well for the second half and will more than counter the timing differences on foreign exchange losses
incurred in the current period arising from the hedging programme.
Agriculture International includes the acquisition of Oro Agri with effect from 1 May 2018, however, profits
for the five months were negated by the R41 million (HY2018: Rnil) charge for the amortisation of intangibles
identified on acquisition. The operating margin of Agriculture International of 4.1% (HY2018: 9.2%) was
negatively impacted by margin pressure in areas such as Zimbabwe, Zambia and Australia and delayed planting
seasons in various territories. Agriculture International has done well to maintain and grow its customer base
in a very competitive environment, which bodes well for the future. This has however impacted negatively
on margins. Unrealised foreign exchange losses impacted on the margin. Agriculture International is also a
seasonal business based on various international planting seasons and coupled with well priced inventory, a
stronger second half performance expected.
MINING DIVISION
The Mining division services the mining industry in South Africa and Africa through BME and Protea Mining
Chemicals.
The Mining division's net revenue remained flat period on period at R2 478 million (HY2018: R2 495 million),
due to a lower ammonia price compared to the prior period (after September the price of ammonia has started
to increase slowly). Ammonia is a key input into the raw materials used to manufacture blasting emulsions
(blasting agents) and the price of the product sold to customers fluctuates accordingly. At a low ammonia
price, the index-linked emulsion prices are adjusted resulting in lower margins in rand terms.
Operating profit of R105 million (HY2018: R377 million) was achieved at an operating margin of 4.2%
(HY2018: 13.5%). Mining International made a further provision for a debtor in Angola following default on the
previously agreed payment terms agreed at financial year-end. A R38 million foreign exchange loss in the current
period compares with a R22 million foreign exchange gain in the prior period. Mining RSA recorded a 57% reduction
in operating profit of R109 million to R82 million (HY2018: R189 million) due to margin pressures, higher
distribution costs due to the increase in fuel price, exchange rate volatility and changes in mine plans by
clients resulting in lower volumes of blasting emulsion compared to plan. The division did well to maintain
and grow its customers base which bodes well for the future, however this impacted negatively on margins due
to the onslaught of competitors.
Mining Chemicals was able to maintain revenue levels and margin despite a reduction in volumes. Following
the closure of a large client in the uranium industry when the mine was placed on care and maintenance,
management adjusted the business plan to replace the lost business and diversify the earning streams both in
terms of customers, products, services and geography.
CHEMICALS DIVISION
The Chemicals division comprises Protea Chemicals and Umongo Petroleum.
Overall sales volumes decreased by 4% (excluding Umongo Petroleum) reflecting the weak state of the South
African economy and in particular the manufacturing and mining sectors which are major industries serviced by
the business. Although there was a marginal improvement in the average selling price, partially due to the
increase in Brent crude oil and the weakening exchange rate, this was insufficient to offset the drop in
volumes and general inflationary increases experienced in the business.
Protea Chemicals has commenced a restructuring exercise to address the weaker trading outlook going forward
(refer to the note on Post Balance Sheet events). The exercise is expected to be completed by financial
year-end with benefits to be realised in the next financial year.
Umongo Petroleum had a challenging first half of the year due to the weak economy affecting the demand for
base oils and additives, substitution amongst product types and ranges due to the increase in the crude oil
price and the slower than planned start up in new markets in Africa. The change in product mix and volumes
resulted in a reduction in revenue with margin and profit remaining steady under the circumstances. Although the
business was behind plan, the period-on-period growth was satisfactory. As part of the earnout provisions as
per the sale and purchase agreement, a total of R52 million of the total provision of R122 million has been
released back into income in the current period as certain stretch targets were not met. With the reversal of
a portion of the earnout provision, the total purchase consideration for the business is reduced. The outlook
remains positive for the business despite the challenges in the economy.
Overall the Chemicals division's operating profit remained unchanged at R65 million (HY2018: R65 million).
The South African business increased 8% period-on-period to R39 million (HY2018: R36 million). Excluding the
reversal of the Umongo Petroleum earnout provision of R52 million, the operating loss in South Africa would be
R13 million, down R49 million from the prior period profit of R36 million. The International business was
marginally down period-on-period reporting an operating profit of R26 million (HY2019: R29 million). Omnia's
50% share of profit, from a long standing chemical distribution joint venture in Zimbabwe, was R8 million
(HY2018: R2 million).
The operating margin decreased to 2.5% (HY2018: 3.2%) and was below the current year's target of 3.0% - 5.0%.
Prospects
Strategy
Omnia's purpose is to deliver trusted performance and innovative solutions that leave the world #Better!
Over the last six months, Omnia's renewed strategy has been developed and the process to implement
it across the divisions has commenced, underpinned by the pillars of continuous improvement (Better
and Better), innovation and integrated solutions (Beyond commodities) and growth through geographical
expansion (Finding new territories), delivered through building our people and the Group's reputation.
Aligned to the reviewed strategy, the Group has launched an internal campaign with the slogan #Better,
to engage with employees and to empower teams to understand, buy-in and deliver on the revised strategy.
Omnia's culture and employees are the most important assets in the business and creates a context
for sustainable performance. A core belief of Omnia is that �Better starts with me� which is a personal
commitment to be #Better Together. This is a strong imperative for cross functional teams throughout
the group to work better together, to leverage group synergies, optimise Group capabilities and ultimately
to bring innovative value chain solutions to customers. The campaign is extremely well received by
employees with many examples of successes already evident.
An example of improving the existing business is the construction of the new nitrophosphate plant at
Sasolburg with final commissioning scheduled to take place by 31 March 2019. The original project cost of
R630 million is likely to increase by approximately 5% to R660 million, due to construction price increasing
in excess of plan. The project is expected to add significant value to the Agriculture division once fully
operational and will fundamentally change the competitive landscape for Omnia.
Closing the transaction to acquire Oro Agri with effect from 1 May 2018 has started to create growth
and synergies within the Agriculture International division in various territories along with new countries
added to our existing international footprint. Integration of the business will bring synergies to various
parts of the Agriculture division, with growth of the Agriculture International business to take place at
an accelerated pace. The Umongo Petroleum business has settled well and is working in conjunction with
Protea Chemicals to realise synergies and benefits identified as part of the acquisition. Expansion into new
markets in Africa remains a key driver for future growth, with work taking place in the current year to allow
for the benefits to be realised in the next financial year. Although the development of these new territories
in Africa has been slower than expected due to the complexity of trading in multiple countries on the
continent, this will provide various growth opportunities for the company going forward.
AGRICULTURE DIVISION
There has been improved collaboration between the various divisions, especially to increase throughput at the
Sasolburg factory which will result in improved financial performance as asset turnover increases. Inventory
levels in the Agriculture division are well positioned to supply the market on the arrival of the first rains
and are expected to decrease rapidly towards year-end with the team focused on liquidating the inventory
position during the fertilizer season. The order book is well positioned with a large portion of orders having been
placed prior to the planting season and supported by well priced inventory compared to current replacement costs.
Margins however remain depressed due to the financial position of farming customers. Capital expenditure will be
kept to a minimum for the remainder of the year to bolster cashflows with the main focus on completing the
nitrophoshate plant to start-up on time. The nitrophosphate plant is expected to ramp up production during the
first six months of the new financial year. The use of nitrophosphate as a raw material in the production of
liquid and dry fertilizer will provide Omnia with a significant competitive advantage as well as the ability to
further differentiate its offering to customers. The production of nitrophosphate will also assist the Group to
increase the production of nitric acid which will further assist improved asset turnover.
The international growth strategy in Agriculture division, through the expansion of the AgriBio business, is
on track. Good opportunities have been identified to grow biostimulant sales and to cross-sell existing Omnia
products, services and solutions through Oro Agri's distribution channels. Oro Agri has small market shares
in large, fast growing markets and the opportunity to expand in these areas will remain a high priority for
management. The R&D and product development pipeline is encouraging for the future. There are exciting growth
opportunities for the Group throughout Asia and India and these will be targeted in the near term. The
construction of the new Oro Agri factory in Portugal is progressing well and is on schedule to be commissioned
before the end of the financial year. On completion, the Oro Agri and Omnia European businesses will be well
placed to leverage this facility to drive future growth in Europe, North Africa and Middle East. This is in
addition to the existing Oro Agri manufacturing facilities in Brazil, California (USA) and Somerset-West
(South Africa).
In Africa, our retail footprint continues to expand, except in Zimbabwe where no further expansion will take
place until the overall financial situation in the country improves. The commercial business looks promising
with good agronomic prospects and well-priced stock that bodes well for the coming season. Across all markets,
farmers remain challenged by competitive pricing pressure, liquidity constraints, currency volatility and
cost pressures, largely as a result of higher fuel costs.
MINING DIVISION
A stronger second half is expected for the Mining division on the back of increased volumes in South
Africa, Zambia and West Africa, the weaker exchange rate and an increased ammonia price. The benefits
of the recently implemented Microsoft Dynamics AX system is starting to bear fruit in various parts of the
business. The near-term risks include inclement rain at the larger sites which result in lower explosives
offtake by customers and continued aggressive competition. Growth into international markets in Africa,
Australia, Asia, North and South America remain key focus areas with regulatory approval for BME's products
now being granted in various territories after extended approval processes. Subsequent to having received
the regulatory approval, sales are now commencing into these territories. In line with their strategy, BME
has been able to retain their existing customers with some additions and are well positioned for an upturn
in the mining sector. BME's safety performance is exceptional and in certain cases are chosen as the
preferred supplier by mining customers as a result of this, which is very encouraging and in line with
the Group's purpose of creating a #Better world. BME will also focus considerably on reducing working
capital in line with the slower offtake in countries with long supply chains, in order to improve their
return on assets managed.
BME has tendered for numerous opportunities across its markets and remains optimistic for securing new
business. Supply chain negotiations have resulted in favourable pricing on certain products imported into
Africa. Product evaluation trials have been completed in many of BME's targets markets with both new
key customers and channel partners.
BME holds the new world record for the largest blast using electronic detonators in Australia (7 350
electronic detonators in a single blast) as well as the second largest blast in Zambia (6 690 electronic
detonators in a single blast), proof that BME's products are able to compete with the best in the industry.
CHEMICALS DIVISION
Traditionally, the second half of the financial year is stronger for Protea Chemicals due to the robust
manufacturing activity in October and November as well as the wine season activity in January and February.
Significant focus on return on assets managed will ensure a reduction in working capital at the year-end.
Management will complete the restructuring exercise to rightsize the business and start to implement the
turnaround strategy before the end of the financial year, ensuring that the business is appropriately set up
for the new financial year (refer to page 21 for the note on Post Balance Sheet events). After completing the
exercise to rightsize the business, delivery on the revised strategy is expected to be amended over the short
to medium term. Activities will be prioritised to ensure that an improved financial performance will be
delivered within the following financial year.
Umongo Petroleum will continue to expand into Africa as part of an aligned vision and with the support of
its key suppliers.
DIVIDENDS
The board has declared an interim gross cash dividend of 75 cents (HY2018: 200 cents) per ordinary share,
payable from retained earnings from the prior financial year. The board has declared an interim dividend in
anticipation of a profitable second-half and full-year performance. The number of ordinary shares in issue at
the date of this declaration is 68 996 832 (including 1 049 273 treasury shares held by the Group). The gross
dividend is subject to local dividends tax of 20% (HY2018: 20%) for those shareholders to which local dividends
tax is applicable. The resultant net dividend amount is 60 cents per share for those shareholders subject to
local dividends tax and 75 cents per share for those shareholders not subject to local dividends tax. The
company's tax reference number is 9400087715.
The salient dates for the interim dividend are as follows:
Last day to trade cum dividend Tuesday, 8 January 2019
Shares trade ex-dividend Wednesday, 9 January 2019
Record date Friday, 11 January 2019
Payment date Monday, 14 January 2019
Share certificates may not be dematerialised or rematerialised between Wednesday, 9 January 2019 and Friday,
11 January 2019, both dates inclusive.
BOARD OF DIRECTORS
Changes to the board and company secretary for the period
The following changes have been made to the composition of the board and company secretary:
- T Mokgosi-Mwantembe was appointed as non-executive director effective 1 June 2018
- M Nana was appointed as Group company secretary effective 2 July 2018
- T Gobalsamy was appointed as non-executive director effective 10 September 2018
RB Humphris AJ de Lange WG Koonin
Chair Group managing director Group finance director
27 November 2018
BACKGROUND INFORMATION
Omnia is a diversified chemicals Group that supplies chemicals and specialised services and solutions for
the agriculture, mining and chemical application industries. Using technical innovation, combined with
intellectual capital, Omnia adds value for customers at every stage of the supply and service chain. With its
vision of leaving a Better World, the Group's solutions promote the responsible use of chemicals for health,
safety and a lower environmental impact, with an increasing shift towards cleaner technologies.
Omnia's corporate office is based in Johannesburg, South Africa and its main production facility in
Sasolburg, some 70 kilometers south of Johannesburg. At 30 September 2018 the Group has a physical presence
in 50 countries and operations extending into Africa, including South Africa, with additional focused
operations in Australasia, Brazil and China.
ADMINISTRATION
Executive directors: AJ de Lange (Group managing director), WG Koonin (Group finance director)
Group company secretary: M Nana
Non-executive directors: RB Humphris (chair), Prof N Binedell, RC Bowen (British), FD Butler, L de Beer,
TNM Eboka, T Gobalsamy, R Havenstein, SW Mncwango, T Mokgosi-Mwantembe
CONTACT INFORMATION
OMNIA HOLDINGS LIMITED
a company registered and domiciled in
the Republic of South Africa
Registration number: 1967/003680/06
JSE code: OMN ISIN: ZAE000005153
REGISTERED OFFICE AND
POSTAL ADDRESS:
Omnia Holdings Limited
2nd Floor, Omnia House
Epsom Downs Office Park
13 Sloane Street, Epsom Downs
Bryanston, 2021
PO Box 69888
Bryanston, 2021
Telephone: +27 11 709 8888
Email: info@omnia.co.za
Tip-offs anonymous: omnia@tip-offs.com
SPONSOR:
Merchantec Capital
2nd Floor, North Block
Hyde Park Office Towers
Corner 6th Road and Jan Smuts Avenue
Hyde Park, 2196
PO Box 41480
Craighall, 2024
Telephone: +27 11 325 6363
TRANSFER SECRETARIES
Link Market Services South Africa (Pty) Limited
13th Floor
19 Ameshoff Street
Braamfontein, 2001
PO Box 4844
Johannesburg, 2000
Telephone: +27 86 154 6572
AUDITORS:
PricewaterhouseCoopers Inc.
4 Lisbon Lane
Waterfall City
Jukskei View, 2090
Private Bag X36
Sunninghill, 2157
Telephone: +27 11 797 4000
info@omnia.co.za
https://protect-za.mimecast.com/s/CjAaCBgX2JCPPNJ2izkYu9
Date: 27/11/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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