28 OMNIA ANNUAL REPORT <strong>2010</strong> OMNIA CHEMICALS DIVISION – REVIEW continued � Polymers, which houses Protea Polymers South Africa, Protea Polymers Eastern Africa and Protea’s Elastomer operations. The improved customer service and management capacity, and an emphasis on optimal utilisation of skills, has already yielded benefits for the division. Strategic associates and acquisitions Despite the challenging conditions that prevailed during the year under review, Protea Chemicals continued to focus on strengthening relationships with key suppliers and customers, and developing into new markets. The Nalco Africa Associate was in line with the division’s strategy to reposition itself to add greater value to clients, moving from being merely a distributor of chemical products. This move forward into value added services resulted in a strategically significant associate and acquisition during the year. The association was undoubtedly the most significant strategic agreement reached during the financial year. Nalco, listed on the New York Stock Exchange, is the world’s leading industrial water treatment and process improvement company. Operating across the mining, pulp and paper, oil and petroleum, industrial water and sewage management sectors, it is active in developing and implementing high-tech solutions to improve industrial processes and reduce water and energy consumption and air emissions. In many respects, the activities of Nalco complement those of Zetachem, an Omnia Group company, which is recognised as a major supplier of speciality chemicals to the water industry in South Africa. Zetachem is one of a few South African manufacturers operating under NSF and ISO 9001 certification in the areas of potable water clarification, sludge dewatering and effluent treatment. Protea Chemicals contributed to Nalco Africa its existing product base as well as relevant revenue and profit streams from its petroleum chemicals, Zetachem and mining chemicals businesses. Nalco contributed its technology and the expertise of expatriate executives who will work alongside former Protea Chemicals staff. Although Nalco Africa reduces the overall market coverage of Protea Mining Chemicals and Zetachem, it brings significant benefits through its world-class products, technologies and structured sales and service model. The formation of the associate comes at a time when South Africa is grappling with concerns regarding water contamination through mining acid waste, the effectiveness of sewage treatment processes and installations, and industrial water use. Nalco Africa, well placed to contribute in all these areas, will undoubtedly benefit from the current and future requirements of these sectors. Protea Chemicals acquired Petroleum Fine Products during the <strong>2010</strong> financial year. This strategic acquisition supplements the Protea Consumer Care market offering by expanding the product line to include white oils and petroleum jelly. The acquisition boosted the operating margins of Protea Consumer Care and in December 2009, during its first month of incorporation within Protea Chemicals, Petroleum Fine Products recorded its best ever monthly performance. Outlook The 14-month downward trend in South African manufacturing output came to an end in December 2009. This was accompanied by an increase in manufacturing sector activity in the last quarter of the year. While these improvements auger well for the supply side of the South African economy, fundamental weaknesses continue to persist in the consumer market where demand is still subdued. A weakening of the rand/US dollar exchange rate would greatly assist a return to prosperity in markets that are currently characterised by excess capacity and eroded margins in chemical product prices. Rand strength remains a threat. Local cost pressures will be driven by the <strong><strong>annu</strong>al</strong> 25% a year electricity price increase to be implemented over the next three years. This will reinforce cost pressures in manufacturing. On the positive side, Protea Chemicals is entering the new financial year with a new structure geared to reduce costs and enhance business efficiencies. This will undoubtedly have a positive impact on operations in the year to come. The addition of Nalco Africa will add strength and bring new opportunities. The consolidation of Protea Polymers and its expected increased market penetration in East, central and southern Africa also hold considerable promise for the future.
MINING DIVISION – REVIEW OPERATIONAL HIGHLIGHTS Prospects for base mineral mining increase Major contract signed with SA’s largest coal mining company Mining industry looks to new BME technology Shocktube assembly plant begins production REVENUE DOWN 16% TO R1,8 BILLION OPERATING PROFIT DOWN 21% TO R212 MILLION ��������������������������� OMNIA ANNUAL REPORT <strong>2010</strong> 29
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