omnia holdings annual report 2010 omnia holdings annu

Within the Chemicals Division product prices also dropped
substantially due to the global economic crisis. In the case of
polymers, whose price structure is influenced by the oil price,
the price drop saw polymer stock being traded at nearly zero
margins. This phenomenon began in the latter half of the 2009
financial year and, with the strengthening of the rand, continued
at more acute levels into the current year. The strength of the
rand had a negative impact on Protea Chemicals’ customers
rendering them unable to compete with equivalent imported
products. Consequently Protea Chemicals’ sales volumes were
8% below those of the previous year. The headline operating
profit margin of this division reduced by 0,5% to 4% when
compared to the previous financial year.
By March 2009, an already serious situation was exacerbated
by the strengthening of the South African rand against the
US dollar, as Omnia’s input costs, as well as its sales, are
referenced against the US dollar.
Working capital
The Omnia business model has long reflected the fact that
there is normally a peak in activity around September each year,
and that supplier credit would fund the inventory at all points
of the business cycle.
This was the case until September 2008 when the global
financial crisis left Omnia holding inventory worth R2,9 billion.
As suppliers were being paid for purchases incurred, a shortfall
in supplier credit developed which required funding from
interest-bearing debt.
It is pleasing to note that since September 2009 the traditional
business pattern has returned. Supplier credit is funding the full
cost of inventories as new stock is procured. The traditional rise
in the inventory levels prior to the oncoming season, long a
feature of Omnia operations, is also evident.
Prospects
The sound fundamentals that have long existed within
Omnia remain unchanged. In addition, the strategic
positioning of the Group from a market risk mitigation
perspective has strengthened.
OMNIA ANNUAL REPORT 2010 25
The three major concerns facing the world today are food
security, the global energy challenge and the quest for
alternative energy and the need for clean, potable water.
Omnia is well positioned to play a positive role in all three
of these critical areas.
Although raw material prices have fallen further, they are
steadying and settling back into the patterns experienced
in 2007.
Prospects for the Mining division are steadily improving.
Markets for platinum, copper, iron ore and other commodities
have grown, while coal will continue to be in high demand.
Activity within the uranium mining sector is set to increase.
After an extended period of 14 months of negative
manufacturing growth, a turnaround is evident. This augurs
well for the Chemicals division which will benefit from
increased sales volumes.
DL Eggers
Group finance director