Omnia flags rising in finance costs in Zambia

Agriculture and industrial chemicals and explosives group Omnia produced robust financial performance in the six months ended September but one niggling factor in Zambia.

Reporting on net finance expenses, Omnia said this item recorded a significant rise during the six months from R33 million to R56 million. This said the company was due to much higher monthly levels of net working capital compared to the prior period which was caused by rand weakness. “Finance expense was also impacted by the higher cost of financing the Zambia operations in kwacha borrowings following the Zambia Government directive that all local trading had to be in kwachas and that local trading in US dollars was no longer permitted.”

Omnia operates three businesses in Zambia namely Omnia Fertilizers Zambia Limited, Bulk Mining Explosives Zambia and Omnia Small scale Limited.

The directive was introduced last year as the two years old leftist Zambia government led by Michael Sata shows its hand. Sata won elections in 2011 after spewing workerist rhetoric. The government has clashed with some South African corporations recently. That will include forcing Shoprite to reverse a decision to fire 3000 worker who had gone on strike.

Back to Omnia the company produced strong performance during the six months ended September. Interestingly it states the company singled out strong performance by its mining division. The division operates through BME (explosives) and Protea Mining Chemicals with presence across the African continent.

Group revenue rose 25.7% to R7.4 billion. This said the group was on the back of strong volume growth in the Mining division and good sales price increases in all divisions.  Gross profit increased 21.3% to R1.5 billion. Operating profit increased 15.2% to R628 million.

Omnia noted that the agriculture division’s operating margin reduced to 4.5% from 8.6% in 2012. This was due to reduced gross margins caused by the unfavourable urea to ammonia ratio and under recovery of production plant overheads. The Chemicals division’s operating margin improved to 2.6% from 1.3% due to higher rand margins on the back of higher rand sales prices whilst overhead costs were contained at the prior year level.

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