Omnia: the operations look great; the taxes don’t


Omnia: the operations look great; the taxes don’t


Published Date: 2021-11-23 | Source: INCE|Community | Author: The Finance Ghost

Omnia: the operations look great; the taxes don’t

Omnia operates in three segments: Agriculture, Mining and Chemicals. The group has just released results for the six months to September 2021.

It all looks good on the most important financial lines, with revenue up 30%, operating profit from continuing operations up 70% and profit after tax from continuing operations up 119%.

Headline earnings per share (HEPS) from continuing operations increased from 125 cents to 286 cents, so it's unsurprising that the share price was 3.6% higher by afternoon trade.

The balance sheet is looking infinitely healthier from a liquidity perspective. Net cash has increased to R719 million from a R1.9 billion net debt position a year ago, a magnificent swing in the company's ability to fund its growth.

It also helps that net working capital decreased to R3 billion from R3.7 billion.

Before we dive into the segmentals, I want to highlight the SARS audit that Omnia tries very hard to stash away in the footnotes of the long-form announcement. This means that if you only read the SENS announcement and not the full pack, you won't see it.

Omnia is the subject of a transfer pricing audit by SARS related to the 2014 to 2016 years of assessment. SARS has levied a liability of around R415 million and understatement penalties of R165 million. There's also an interest amount of R341 million. Omnia is required to pay R207 million in December 2021 and can fight abut the rest.

Omnia thinks that a settlement amount would be "substantially less" than the tax liability assessed by SARS but anything is possible.

There is no interim dividend. As the underlying results were so strong, I can only speculate that this might be a defensive play in light of the SARS matter. Oh, and you'll only find the lack of interim dividend in the long-form announcement as well.

Anyway, let's move on to the segmentals.

The Agriculture division increased net revenue by 28% and operating profit by 15%, so there are margin pressures in that business. Agriculture RSA led the way with growth in net revenue of 66% driven by growth in volumes and prices.

Omnia's businesses can also work together to generate a better overall result. For example, the Mining division was a source of higher offtake for the Agriculture division, which drove higher throughput and cost recoveries. Simply put: it helps to be able to sell products within the group as well as to external customers.

In Agriculture RSA, operating profit increased dramatically from R19 million to R385 million. This was offset to an extent by a drop in operating profit in Agriculture International from R136 million to R108 million. The main culprit for this was a fixed price contract in Zambia. Omnia is committed to expanding this division to new regions and is busy with registration work in numerous European countries.

The Mining division increased net revenue by 31% to R3.28 billion with positive contributions from all commodity segments. Operating profit increased by 28% to R250 million. Staff and maintenance costs put pressure on the operating margin, along with costs related to exploring new opportunities. The operations in Africa put in a solid performance (net revenue up 13% and operating profit up 30%) despite the usual operational challenges of making money in Africa, like shipping constraints and political instability in West Africa. The new ventures in Canada, Australia and Indonesia are still sub-scale and under pressure.

The Chemicals division increased net revenue by 12% to R2.3 billion and operating profit was flat at R109 million, which means margins took a knock. Umongo Petroleum (which Omnia is selling) achieved net revenue growth of 37%.

It's a real pity that the company insists on sweeping the SARS issue under the carpet in the short-form SENS. The results are strong and Omnia has a great track record with mergers and acquisitions. Unfortunately, the disclosure strategy leaves a poor taste from a governance perspective.


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