| Mon 21 Jun 2004, 9:25 | | Results for the financial year ended 31 March 2004 |
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Omnia - Reviewed Results for the financial year ended 31 March 2004
OMNIA HOLDINGS LIMITED (Incorporated in the Republic of South Africa)
(Registration number 1967/003680/06) Share code: OMN ISIN: ZAE000005153
(`Omnia` or the `Group`)
- Five year earnings target achieved
- Real growth of 15% over the last five years
- Turnover, including Prochem, up 42%
- Headline earnings of R174 million
- Operating cashflows remain strong
- Debt:equity after Prochem acquisition at 28%
Commentary
Introduction
Omnia, a specialist chemical services company providing customised solutions in
the agriculture, mining and chemical markets, today announced results for the
year ended 31 March 2004.
The Group`s strategy is focused on responding to the needs of its customers and
the commercial challenges they face through the deployment of advanced
technology solutions and innovative products in the markets which the Group
services.
The Board is pleased with the results for the year, which have reverted to the
historical earnings growth trend even though the earnings have declined. As
indicated in the Group`s annual report for the year ended 2003 and again in the
interim results announcement for the six months ended 30 September 2003, the
2003 financial year was an exceptional one. This was primarily due to unusually
high export volumes and margins driven by the weak rand and the R27,4 million
settlement of an outstanding loss of profits claim for a compressor failure at
the Group`s Sasolburg plant during 2000.
Financial Review
Group revenue increased by 42% to R3,3 billion (2003: R2,3 billion), reflecting
the inclusion of Prochem`s revenue for the seven months to March 2004. The
inclusion of Prochem`s results also impacted on operating costs before
depreciation and net of other income, already adversely affected by the non-
recurrence of the insurance claim proceeds. This resulted in an increase of 32%
compared to the previous year. The Group`s operating margin, which now includes
Prochem, amounted to 10,1%, declining from the exceptional 18,6% for the prior
year ended March 2003. However, this compares favourably with the 9,3% achieved
for the year ended March 2002, before the inclusion of Prochem.
Net interest paid increased to R35,3 million (2003: R15,9 million) due to the
debt funding to partially finance the acquisition of Prochem. Fair value losses
of R5,2 million and R16,1 million, incurred during the year and following the
application of the new accounting standard AC 133: Financial Instruments -
Recognition and Measurement, have been disclosed.
The R5,2 million loss relates to commodity hedging contracts, now required to be
disclosed in terms of AC 133 and previously accounted for within cost of sales.
The R16,1 million relates to forward exchange contracts in respect of the
Group`s foreign currency commitments during a phase of the strengthening Rand,
which were previously accounted for and included within operating profit.
Earnings have declined in accordance with expectations, but are in line with the
historical earnings growth trend.
The Group`s headline earnings and headline earnings per share declined to R
174,3 million (2003: R239,9 million) and
R4,44 per share (2003: R6,32 per share), respectively. The allotment of 1,831
million shares to the management vendors of Prochem as part of the purchase
price has also had a dilutionary effect of almost 3% on headline earnings per
share.
Compared to the headline earnings per share achieved for the more comparable
year to March 2002, growth in headline earnings per share, after the inclusion
of Prochem, has been a pleasing 56%, notwithstanding the dilution referred to
above.
The strengthening of the Rand since March 2003 resulted in a R40 million
decrease in the foreign currency reserve. This represents the movement in the
exchange rate as it impacts on the Group`s US Dollar denominated assets held
offshore.
Intangible assets of R461 million include goodwill, trademarks, patents and
distribution contracts, mainly arising from the acquisition of Prochem. Net
current assets and liabilities have increased with the addition of the Prochem
working capital components.
Cash flow from operating activities of R214 million (2003: R358 million) was
considerably better than anticipated despite a high taxation payment of R124
million this year. The strong cash flow allowed the Group to pay down debt,
resulting in a much lower than expected debt: equity ratio of 28%, achieved
despite the R200 million term loan introduced to partly fund the acquisition of
Prochem in September 2003. This loan is repayable in three equal annual
installments, with the first one being due in February 2005.
Operational Review
AGRICULTURE
Hectares planted to maize in South Africa increased significantly in 2002/03,
resulting in fertilizer volumes rising in the previous comparable period by
about 18% above a 14-year average. This fertilizer demand increase was fuelled
by a relatively high maize price of almost R2 000 per ton during 2003. In
addition, the weaker Rand during last year facilitated an unprecedented increase
in fertilizer exports at favourable margins.
With the reduction in the maize price to below R1 000 per ton, drier soil
conditions and the much stronger Rand in the 2004 financial year, fertilizer
sales volumes returned to their previous levels in the local markets. Given the
tough adverse weather conditions at the beginning of the season, the return to a
14 year average in annual plant food consumption indicates the resilience of the
industry and demonstrates the strength of Omnia`s value-added offer to its
resilient farming customers in South Africa.
The volume decrease, coupled with a reduction in prices, resulted in fertilizer
sales revenues decreasing by 11% from the exceptionally high levels achieved in
the previous year to R1,6 billion (2003:R1,8 billion).
The ratio between the international price of urea, a widely traded fertilizer
commodity, and that of ammonia, the raw material for the nitrogen component in
fertilizers, was also less favourable than in the previous comparable period.
Coupled with the strength of the Rand, operating margins decreased to 13% (2003:
21%).
The Group`s production facilities in South Africa performed extremely well,
making it possible to double the volumes sold into the wholesale market.
The Group`s speciality fertilizer operations in Australia and New Zealand,
particularly the humate business in Australia, are progressing well. The joint
venture with Ravensdown, a large fertilizer distributor in New Zealand,
commenced operations toward the end of the financial year and progress is on
track.
MINING
Revenues have increased by 37% to R577 million (2003: R422 million) following
the inclusion of Prochem`s existing mining business and the higher production
levels at South African coal mines. However, sales were negatively impacted by
the strength of the Rand, particularly in respect of African operations.
Operating margins declined marginally to 11% (2003: 12%) after absorbing the
expected losses from the electronic detonator business. An increase in value
added services and the introduction of a number of innovative cost reduction
initiatives in the rest of the mining business limited the drop in margin.
Significant strides have already been made in improving and perfecting the
detonator technology and the electronic detonator business is on schedule to
turn profitable by March 2006.
In line with Omnia`s focus on Responsible Care T, Bulk Mining Explosives
achieved ISO 9000 accreditation at a number of its key production sites and is
currently working towards attaining ISO 14 000 and ISO 18 000 accreditation.
CHEMICALS
Omnia acquired Prochem, the leading chemical warehousing and distribution
company in South Africa, with effect from 1 September 2003. Prochem is strongly
service-based and trades across a wide range of products in virtually every
industry in the country. It interfaces with a large customer base, sources its
requirements from over 100 different suppliers and represents a number of
leading international principals.
The integration of the Prochem business has been smooth. No unexpected costs
have arisen, with fees limited to the costs directly related to negotiations and
legal formalities of the acquisition. These costs of R6 million have been
capitalised to the purchase consideration.
Prochem continues on its historic trend of growing volumes, which, to a large
extent, off-set the negative impact of the Rand on its results.
Due to the inclusion of Prochem for the seven months to March 2004, chemical
revenues of R1,1 billion are not directly comparable with the R94 million of the
prior year, which relate to the Intaba business only.
Partnership with Management and Employees
The Group is pleased to announce that the Group`s internal five-year performance
target, approved by shareholders in 1999, has been surpassed by 21%. This is the
third consecutive five-year performance target that has been exceeded by the
Group.
In June 1999, two broad based employee share schemes known as the `Partnership
with Management Scheme` and the `Partnership with Employees Scheme` were put in
place. The same earnings target was set for both schemes. In terms of the rules
of the Partnership with Employee Scheme, employees, the majority of which are
previously disadvantaged persons, will be granted 662 350 share options to be
exercised at the end of July 2004. In terms of the Partnership with Management
Scheme, convertible preference shares, which members of management purchased and
paid for five years ago, will convert into 1 424 000 ordinary shares in Omnia.
The dilutionary effect of both the Partnership with Employee Scheme and the
Partnership with Management scheme has been taken into account in the weighted
average number of fully diluted shares in issue.
Prospects
The Prochem acquisition has bedded down well and the Group is on track to
exploit the inherent synergies and opportunities across all the businesses.
Prochem will continue to grow its volumes.
The production of maize has returned to sustainable levels, resulting in more
stable pricing. It is therefore expected that the national fertilizer market
will remain in line with the long-term average of two million tons per annum.
International fertilizer prices, although remaining volatile, are still at a
high level in US Dollar terms and are expected to remain so for the coming
season.
The continuing strong Rand remains one of the most important considerations
affecting financial performance of the Group in the near term. Export margins
will therefore remain depressed as long as these conditions prevail.
The outlook for mining continues to be positive and with a reduction in the loss
associated with developing the electronic detonator business, it can be expected
that this division`s earnings for the forthcoming year will be stronger than in
the year under review.
Group earnings are expected to show an improvement over the results of the year
ended March 2004.
Capitalisation Award
At the time of the release of the interim results, shareholders were advised
that an interim dividend would not be paid but would instead be considered for
inclusion in the final dividend. Mindful of the further growth prospects and as
a consequence the desire to strengthen the balance sheet, the directors have
resolved to award capitalisation shares, emanating out of distributable
reserves, to ordinary shareholders recorded in the company`s register at the
close of business on Friday, 16 July 2004 (`record date`). Shareholders will
have the right in respect of all or part of their shareholdings to elect to
receive a cash dividend of 120 cents per ordinary share (`the cash election`)
for the year ended 31 March 2004, which will be declared only on those ordinary
shares for which capitalisation shares are not allocated.
If the cash election is not made, shareholders will be deemed to have elected to
receive capitalisation shares.
Ratio of capitalisation award
The rounded number of capitalisation shares to be awarded will be determined by
multiplying 120 cents by 1,08333 and dividing the result (130 cents) by R29,81
(i.e. the weighted average traded price of the ordinary shares of the company on
the JSE Securities Exchange South Africa (`JSE`) for the three trading days
ended at the close of business on Thursday, 17 June 2004) multiplied by the
number of shares held by a shareholder on the record date.
Administration
The last day to trade in the company`s shares for purposes of entitlement to the
capitalisation award is Friday, 9 July 2004 and dividend cheques and share
certificates (where required) pursuant thereto will be posted to certificated
shareholders on or about Monday, 19 July 2004. CSDP and/or broker accounts will
be credited/updated on or about Monday,
19 July 2004 in respect of dematerialised shareholders. Share certificates may
not be dematerialised or rematerialised between Monday, 12 July 2004 and Friday,
16 July 2004, both days inclusive.
Application will be made to the JSE for the maximum number of capitalisation
shares to be listed with effect from the commencement of business on or about
Monday, 12 July 2004 when the company`s shares will be quoted `ex` the
capitalisation award.
A circular relating to the capitalisation award will be posted to shareholders
on or about Monday, 28 June 2004.
NJ CROSSE RB HUMPHRIS
Chairman Managing Director
21 June 2004
CONDENSED CONSOLIDATED INCOME STATEMENTS
For the year ended 31 March 2004
Reviewed Audited
R`000 2004 % 2003
Revenue 3 278 590 42 2 315 078
Cost of sales (2 253 656) (1 376 023)
Gross profit 1 024 934 9 939 055
Operating costs
before depreciation
and net of other income 621 259) 32 (471 199)
EBITDA 403 675 (14) 467 856
Depreciation and
amortisation of intangible
assets other than goodwill 3 120) 68 (37 481)
Amortisation of goodwill (8 108)
Operating profit 332 447 (23) 430 375
Finance costs
- Net interest paid (35 323) 122 (15 922)
- Net monetary loss (4 077) (8 862)
Fair value loss on
financial instruments (50 609)
- Forward contract
transactions not
qualifying as hedges (45 363) 81 (25 128)
- Other financial
instruments (5 246)
Profit before taxation 242 438 (36) 380 463
Taxation (75 770) (46) (139 708)
Profit after taxation 166 668 (31) 240 755
Minority interest (505) (40) (846)
Net profit for the year 166 163 (31) 239 909
Reconciliation of Headline
Earnings
Net profit for the year 166 163 (31) 239 909
Amortisation of goodwill 8 108
Headline earnings 174 271 (27) 239 909
Basic earnings per
share (cents) 423,1 (33) 631,9
Headline earnings per
share (cents) 443,7 (30) 631,9
Fully diluted earnings
per share (cents) 394,7 (33) 587,7
Fully diluted headline
earnings per share (cents) 413,9 (30) 587,7
Dividends per share (cents) 72,5 * 129,0
Weighted average number
of shares in issue (`000) 39 277 3 37 969
Weighted average number of
fully diluted shares
in issue (`000) 42 102 3 40 820
Fully diluted
earnings (R`000) 166 163 (31) 239 909
EBITDA interest cover 11,4 (61) 29,4
* In respect of prior year
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
For the year ended 31 March 2004
Reviewed Audited
R`000 2004 % 2003
Operating profit 332 447 (23) 430 375
Depreciation and
amortisation 71 228 90 37 481
Adjustment for non-cash
and other items (72 640) (77 638)
Finance costs and taxation (159 768) 186 (55 923)
Generated from
working capital 71 101 (4) 73 833
Available from operations 42 368 (41) 408 128
Dividends paid (28 584) (49 743)
Cash inflow from
operating activities 213 784 (40) 358 385
Cash outflow from
investing activities (671 226) 595 (96 576)
Purchase of business (593 779) (18 126)
Other investing
activities (77 447) (1) (78 450)
Cash inflow/(outflow) from
financing activities 193 789 (47 674)
Net (decrease)/increase
in cash (263 653) 214 135
Net cash/(overdrafts)
at beginning of year 281 967 57 097
Effects of exchange
rate movements 3 436 10 735
Net cash at end of year 21 750 281 967
CONDENSED CONSOLIDATED BALANCE SHEETS
As at 31 March 2004
Reviewed Audited
R`000 2004 % 2003
Assets
Property, plant
and equipment 534 240 18 451 996
Intangible assets 460 958 14 761
Unlisted investments
and loans 60 127
Current assets 1 074 300 27 848 513
2 069 558 57 1 315 397
Equity and liabilities
Ordinary shareholders`
equity 715 529 24 578 114
Minority interest 2 005 (15) 2 366
Deferred taxation 62 935 9 57 499
Non-current interest
bearing debt 142 637 722 17 349
Current liabilities 1 146 452 74 660 069
2 069 558 57 1 315 397
Net interest-bearing
debt (funds) 201 767 (252 784)
Net asset value per
share (Rand) 17,97 17 15,32
Directors` valuation of
unlisted shares 69
Capital expenditure
Incurred 80 325 86 534
Authorised and committed 28 921 5 524
Authorised but not
contracted for 114 722 81 905
SEGMENTAL ANALYSIS
For the year ended 31 March 2004
Reviewed Audited
R`000 2004 % 2003
Revenue 3 278 590 42 2 315 078
Agriculture 1 778 720 (8) 1 928 184
- Less: Intersegmental
sales (169 085) 31 (128 759)
Mining 577 445 37 421 559
Chemical 1 095 969 1 065 94 094
- Less: Intersegmental
sales (4 459)
Operating profit 332 447 (23) 430 375
Agriculture 203 690 (45) 373 536
Mining 64 238 31 49 126
Chemicals 64 519 736 7 713
Statements of Changes in Ordinary Shareholders` Equity
Non-
Stated distributable Retained
R`000 capital reserves earnings Total
At 1 April 2002 64 017 95 290 305 985 465 292
Net profit
attributable to
ordinary
shareholders 239 909 239 909
Decrease in
foreign currency
translation reserve (70 918) (70 918)
Treasury shares (6 865) (6 865)
Ordinary dividends
paid (49 304) (49 304)
At 31 March 2003 57 152 24 372 496 590 578 114
Net impact of
adoption of AC133 1 264 1 264
At 1 April 2003
restated 57 152 24 372 497 854 579 378
Net profit
attributable to
ordinary
shareholders 166 163 166 163
Decrease in foreign
currency
translation reserve (40 432) (40 432)
Ordinary shares
issued 35 632 35 632
Treasury shares 2 506 2 506
Ordinary dividends paid (27 718) (27 718)
At 31 March 2004 95 290 (16 060) 636 299 715 529
NOTES
Accounting policies
These condensed consolidated preliminary financial statements are prepared in
accordance with Generally Accepted Accounting Practice in South Africa,
including AC127: `Interim Financial Statements`, which is relevant for
preliminary financial information, and Schedule 4 of the South African Companies
Act. The accounting policies used in the preparation of the preliminary
financial statements are consistent with those used in the annual financial
statements for the year ended 31 March 2003, except for the adoption of AC133:
`Financial Instruments - Recognition and Measurement` (`AC133`) on 1 April 2003.
In accordance with AC133, the comparative financial information for the year
ended 31 March 2003 and 2002 have not been restated. The impact of the adoption
of this standard is as follows:
Opening retained earnings have been restated to record a fair value profit of
R1,3 million in respect of commodity contracts at 1 April 2003.
A fair value loss of R5,2 million in respect of commodity contracts was recorded
in the income statement during the year.
- The company has historically recorded its foreign exchange contracts (`FEC`)
in accordance with the requirements of AC133, and therefore no opening retained
earnings adjustments was required in respect of these contracts. The fair value
loss on FEC contracts recorded in the income statement during the year is R16,1
million.
Acquisition of Prochem business
On 1 September 2003, the Group acquired the business and assets of Prochem
(Proprietary) Limited for a purchase consideration of approximately R629,4
million. Goodwill of R280,9 million, being the excess of the purchase
consideration over net assets acquired was recorded and is being amortised on a
straight-line basis over 20 years, being its estimated useful life.
The purchase consideration of R629,4 million was allocated to net assets of
R163,2 million, intangible assets other than goodwill of R185,3 million with the
balance of R280,9 million being allocated to goodwill. Intangible assets other
than goodwill are being amortised on a straight-line basis over periods between
10 and 20 years, based on their estimated useful lives. Goodwill is being
amortised over 20 years.
The purchase consideration has been funded by:
- a R200m term facility (R66,7 million has been included in current liabilities
with the balance of R133,3 million included in non-current liabilities);
- R35,6m through an issue of 1 831 019 Omnia shares with a no par value of
R19,46 per share; and
- the balance of R393,8m was financed out of cash.
There is a security structure in place in terms of which a special purpose
vehicle (`SPV`) has provided guarantees to the Group`s banking facility
providers. The main operating companies as well as various other Group companies
have in turn provided the SPV with indemnities and guarantees.
Furthermore, as security for the loans that have been entered into, some fixed
assets and moveable assets at the company`s plant at Sasolburg (as opposed to
other plants) have been encumbered by a mortgage and a general notarial bond
respectively in favour of the SPV.
Additionally, receivables arising only out of the South African operations of
the Group have also been ceded in favour of the SPV.
These securities have been put in place in respect of the net interest-bearing
debt comprising the R200 million loan facility and other short-term facilities.
Hyperinflation
The hyperinflation adjustments, as required by the accounting standard AC124
`Financial Reporting in Hyperinflationary Economies`, result from the continued
devaluation in the Zimbabwean Dollar. The most significant adjustment is a
reduction in gross profit for the year by R13,1 million. The net impact to the
group, is a net loss of R17,8 million.
Dividends
A dividend of 72,5 cents per share was declared on 10 June 2003 in respect of
the previous year. The dividend is reflected in the current year ended 31 March
2004.
Cash flow statement
Non-cash flow items on the cash flow statement comprise foreign exchange and
FCTR movements and hyperinflation adjustments.
Commitments
The future minimum lease payments under non-cancelable operating leases are R5,2
million within one year and R3,9 between two and five years, giving a total of
R9,1 million.
Forward contract transactions
Forward cover costs of R45,4 million include an amount of R6,5 million in
respect of forward exchange contracts entered into in respect of foreign
denominated loans from group companies.
Headline earnings per share
The headline earnings per share is calculated by dividing the headline earnings
by the weighted average number of ordinary shares in issue, which excludes
shares held as treasury shares. The headline earnings is adjusted for R8,1
million in respect of goodwill amortised.
Review opinion
The condensed consolidated financial information for the year ended 31 March
2004 included in this report has been reviewed by the auditors,
PricewaterhouseCoopers Inc. A review opinion is available for inspection at the
company`s registered office during normal business hours.
Directors
NJ Crosse (Chairman), FD Butler, DL Eggers* (Group Finance Director), NKH Fitz-
Gibbon, RB Humphris* (Group Managing Director), Prof SS Loubser, Dr WT Marais
(Alternate to WT Marais), WT Marais (Deputy Chairman), JG Pretorius, TR Scott*,
PA Springett
*Executive Directors
Registered office
1st Floor, Omnia House,
13 Sloane Street, Epsom Downs,
Bryanston, Sandton
PO Box 69888, Bryanston 2021,
Tel: (011) 709-8888
Transfer secretaries
Ultra Registrars (Pty) Ltd
11 Diagonal Street, Johannesburg 2001
PO Box 4844, Johannesburg 2000
Date: 21/06/2004 09:17:17 AM
Produced by the JSE SENS Department
