omnia holdings annual report 2010 omnia holdings annu

Financial performance
As expected, volumes improved notably in the South African
domestic market over those of the comparable prior period
when an abnormal and subdued buying pattern developed
amongst the Group’s farmer customers, as a consequence of
the exceptionally high fertilizer prices that prevailed during the
first half of the prior financial year. However, the subsequent
significant 35% reduction in average fertilizer selling prices
caused revenue in the Division to fall by 17% to R3,7 billion
(2009: R4,5 billion).
The inventory write-down discussed below was the main cause
for the Division to show an operating loss of R85 million for the
period (2009: R410 million profit).
Operational performance
The 2010 financial year was one of the most difficult years yet
experienced by the fertilizer industry.
International traders took up long positions in fertilizer stock as
prices began to increase rapidly in 2008. These prices then fell
rapidly during October 2008, coinciding with the South African
maize planting season during which farmers, because of the low
prices of maize on key markets, reduced the hectares and
application rates. This further dampened demand for fertilizers at
what was a critical time for Omnia. In what was a double blow,
commodity prices then fell a further 24% and the rand
strengthened by 23% during the first half of the 2010 financial
year. All major competitors responded to the market conditions
by trying to liquidate their long stock positions, and margins
came under severe pressure. The inevitable consequence was
that stock had to be written down, resulting in a financial loss of
R350 million. Internationally, however, Omnia achieved fertilizer
sales growth, with increased sales being attributable mainly to
the wide range of specialist fertilizers available from Omnia and
the comprehensive support provided to farmers through the
Nutriology ® offering. This includes the development of products,
services and relationships within the agricultural sector. Central
to its delivery are Omnia’s agronomists who are supported by
world-class analytical laboratories, research and development,
biological analyses and quality control.
The introduction of Omnia products to new distributors also
increased volume sales and provided additional sales opportunities.
Speciality sales of coated granular products increased as farmers
began to appreciate the value of K-humate and trace elements at
the time of planning row crops. Testing of silica and boron
OMNIA ANNUAL REPORT 2010 33
products have proved successful and will add further appeal to
Omnia’s specialised fertilizer product offerings.
The African business performed well overall and sales increased
to commercial farmers operating in Malawi, Zambia, Zimbabwe,
Angola, Botswana and Madagascar. Competition for market
share intensified as some companies offered prices below
import parity. Nutriology ® , which has differentiated Omnia
from its competitors since the company entered the market,
will continue to be a business focus.
ETC Bio-Energy Zambia, with whom Omnia has been pioneering
the growth of Jatropha seed, a biofuel alternative to diesel,
continued with planting. Some 2 100 hectares have been
planted, making it possible to commence with the manufacture
of biodiesel in a refinery. In Zimbabwe, despite ongoing political
and economic problems, Omnia Zimbabwe performed well.
In the Australasian business, the downward trend in fertilizer
prices abated. However, the weak margins persisted as
businesses disposed of high value stock at low margins.
The pecan nut industry, a key agricultural activity in New
Zealand, failed to meet expectations as international demand for
the crop declined. This had a negative impact on the volumes of
fertilizer sold into the sector. The currencies of both Australia
and New Zealand remained stable during the year under review,
but remained high against the US dollar.
The net result was a slow recovery in margins in Australia as the
region returned to a break-even level.
Outlook
Omnia Fertilizer has huge potential to grow in spite of the
current instability in the market, as farmers continue to seek
quality products and the services offered by Omnia to assist
them with profitable farming.
Enhancing the Nutriology ® market position will continue to be
a focus and customer service levels will be improved in
appropriate areas.
The strong trend towards micro-nutrients in fertilizers is
expected to continue and will have a favourable impact on sales
volumes and margins. These sales will be driven by the growing
appreciation among farmers of the role of speciality products on
the yield quantity and quality of their crops.