omnia holdings annual report 2010 omnia holdings annu

(2009: 1 107,4 cents), and headline earnings per share fell
to 80,6 cents (2009: 1 114,2 cents).
Total running expenses net of other income decreased by 6%
to R1,1 billion (2009: R1,2 billion).
Carbon credits, generated since 2008, were sold for the first
time during the year under review.
Chemicals
Protea Chemicals operated in a challenging environment
characterised by decreasing commodity prices and a
strengthening rand, which squeezed margins and resulted in
the write-down of higher priced stocks in the polymers business.
Revenue contracted by 26% to R3,3 billion (2009: R4,5 billion)
with a corresponding reduction in operating profit of 23% to
R152 million (2009: R198 million). The operating profit margin
was maintained at 4,5%. However, if the profit on contribution
of business to Nalco is excluded, this fell to 4%.
The assets of the EcoGypsum plant, which commenced
production during the 2009 financial year and produces
gypsum for cement manufacture and use in cement board
(EnviroGypsum), were incorporated into Protea Chemicals
during the year. This gave the chemicals business full financial
responsibility for this manufacturing unit.
The acquisition of Highchem in East Africa and its incorporation
into the polymers business was concluded. However, production
problems at Sasol Polymers, a key supplier to the business,
negatively impacted results.
During the year, the Group acquired Petroleum Fine Products.
The company produces petroleum jelly, a mainstay product in
the consumer care field, and technical oil. The business will be
integrated into Protea Chemicals’ Consumer Care division.
The acquisition is in line with the Group’s strategy to strengthen
vertical integration within Omnia’s businesses to improve
margins. It is consistent with the Group’s stated intention to
reinforce the chemicals business through an increased focus
on product manufacturing, rather than confining its activities
to distribution. This will enable Omnia to take advantage of
opportunities within its areas of interest as they arise.
Mining
With the decline in global demand during the second half of the
2009 financial year for many of the commodities mined within
South Africa, several of the Mining division’s major customers
cut back production. This had a knock-on effect on purchases
of explosives, which decreased orders placed with the Group.
The price of ammonium nitrate, one of the main raw materials
of explosives manufactured by Omnia, declined sharply in
late 2008, after reaching record highs. This resulted in margins
being squeezed.
Sales of mining chemicals were disappointing with volumes,
particularly to uranium mines, not meeting expectations.
However, this decline is expected to be temporary as global
energy demand drives the demand for uranium used in nuclear
energy plants.
The diversified nature of its activities shielded the Mining
division from the worst effects of the recession until markets
OMNIA ANNUAL REPORT 2010 19
began to improve towards year end. Revenue for the period
reduced by 16% to R1,8 billion (2009: R2,1 billion). Operating
profit of R212 million (2009: R269 million) was 21% below that
of an extraordinary 2009 financial year, with the operating margin
declining marginally from 12,7% for the year ended 31 March
2009 to 11,9% for the year under review.
The slow but steady rally in commodity prices, which is being
fuelled by demand for coal from the energy sector and
developing countries such as China and India, bodes well for an
improved performance in the next financial year. The demand
for bulk explosives, although lower compared to last year, has
shown good signs of recovery.
The division commenced production of shocktube at the
Losberg facility. This will add a new dimension to the company
by enabling it to rapidly and flexibly respond to demand and
deliver on customer orders as required.
Volume growth and profitability will be assisted by the growing
acceptance of shocktube technology for use in deep level
mining. Traditionally dominated by standard “cap and cord”
technology, this sector has begun to appreciate the advantages
of shocktube technology, which include safety improvements,
better control of explosions and higher ore yield.
BME, which has led the field in the use of shocktube technology
in open cast mines, is well positioned to benefit from
this transition and is expected to substantially increase its
market share.
Another example of BME leading innovation in explosives
application technology, is its home-grown development of
electronic delay detonator technology. Rated as one of the most
advanced systems of its type in the world, this user-friendly
system will enable mines to make further safety gains, reduce
ore extraction costs, and increase operational efficiency and
productivity.
Agriculture
During the 2010 financial year, fertilizer selling prices decreased
significantly by an average of 35%. As a result, divisional
revenue fell by 17% to R3,7 billion (2009: R4,5 billion). Due to
the challenging trading conditions and inventory write-down
detailed previously, an operating loss of R85 million was
recorded for the period (2009: R410 million profit).
The market conditions that led to farmers stockpiling fertilizer
began to abate as raw material prices returned to more realistic
levels, bringing some stability to a previously highly volatile
market. During the current financial year, farmers reverted to
traditional buying patterns and confidence has returned to the
industry as a result of good maize crops. Sugar production,
which has been ramped up to take advantage of high prices,
will add impetus to sales.
As Omnia is one of only two South African suppliers of a
complete range of granular, liquid and speciality fertilizers, the
benefits of a recovery in agricultural prosperity will be significant.
The division will continue to support growth within the
agricultural sector by assisting farmers with the technical
expertise required to increase crop yields and improve the
fertility of their soil. Omnia’s ability to offer its customers