THE BOTTOM LINE
Omnia results should show benefits of diversification
About 37% of the chemicals producer’s earnings come from the rest of Africa, Brazil and Australia
Analysts and shareholders will be eager to see the final results of chemicals group Omnia, released today. About 63% of revenue is earned in South Africa, with the remaining 37% mainly coming from the rest of Africa, Brazil and Australia. This means group earnings are heavily influenced by agriculture and mining cycles.SA and southern Africa have seen widespread drought in past years. While this has lifted in many parts of SA, agriculture in the Eastern Cape continues to be affected, while crop production in the Western Cape is unlikely to fare much better despite recent rains. This comes as the ending of drought elsewhere in the country led to record maize harvests.
But excess maize production domestically and also abroad raised maize stock levels, which led to weak export demand. Subsequent depressed maize prices meant that the profitability of farmers was squeezed, and this in turn led to margin pressure on fertiliser sales.
In the interim, SA’s poor gross domestic product growth has buffeted the country’s manufacturing sector, resulting in flat to declining sales of chemicals. Omnia is affected by all such peaks and troughs.
The group recently finalised the acquisition of Oro Agri Opportunities for $100-million. The US-based company makes non-toxic crop protection products, liquid fertilisers and soil conditioners. Oro Agri operates in four major global agriculture regions and has production facilities in the US, Brazil and SA. This diversification should help Omnia stabilise market cycles.