RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) on Omnia Group Limited based on the following key criteria:
Omnia Group limited (“Omnia”) is a JSE listed, diversified chemicals provider, to the mining, agriculture and chemicals sectors. Operations are located primarily in South Africa and Sub-Saharan Africa, with a small presence in Brazil and Australasia. The group’s dominant position was further enhanced by the recently completed nitric acid plant, which gives Omnia substantial local manufacturing capacity and supply stability. As this is at a much lower cost than imported nitrates, it provides an important competitive advantage.
On the back of robust Mining and Agriculture revenue, and in light of the weaker Rand/Dollar exchange rate, group revenue increased by 24% to R13.5bn, exceeding forecasts by 12%. The overall gross margin advanced to 23% (F12: 22%), raising gross profit to R3.1bn (F12: 2.4bn) as the group benefitted from a greater level of internal nitric acid production. Distribution costs were well contained, growing in line with revenue, although, administration costs rose by a comparatively higher amount due to provisions for staff incentive schemes. The increased revenue, combined with the firmer operating margins of 9%, saw operating profit rise to a review period high of R1.3bn in F13. Nevertheless, the full benefits of the new nitric acid plant are yet to materialise due to an unfavourable prevailing urea/ammonia price and some plant commissioning issues. The utilisation of pass through pricing has seen a decline in earnings volatility, with the group passing costs to their customers.
Despite the strong growth, Omnia reported a lower working capital absorption, as the increase in inventories was largely funded by trade creditors and debtors were well managed. As a result, cash flow from operations doubled to a review period high and was sufficient to cover capex and repay some debt. Given the decrease in gross debt, net gearing and net debt to EBITDA fell to 13% and 38% at FYE13 respectively (FYE12: 22% and 73% ) , review period lows. Net interest coverage rose to 15x in F13. By its nature Omnia is working capital intensive, exposing the group to large short term funding requirements in times of volatile commodity prices. Nevertheless, the group retains sufficient funding facilities from a diversity of banks to manage these fluctuations.
Positive rating movement could develop from a sustained growth in revenue and operating profit over the medium term, while maintaining moderate gearing levels. In addition, continued global diversification of earnings, thereby mitigating reliance on the South African economy, would be viewed positively. The rating could come under pressure if unexpected commodity price volatility materialises, necessitating increased short term debt to fund working capital requirements, and thereby increasing gearing metrics materially above current levels.
| NATIONAL SCALE RATINGS HISTORY | |
| Initial rating (Mar/2009) | |
| Long term: BBB+(ZA); Short term: A2(ZA) | |
| Outlook: Stable | |
| Last rating (Jul/2012) | |
| Long term: A-(ZA); Short term: A1-(ZA) | |
| Outlook: Stable | |
| ANALYTICAL CONTACTS | |
| Primary Analyst | Secondary Analyst |
| Eyal Shevel | Thato Modungoa |
| Sector Head: Corporates | Junior Analyst |
| +27 11 784 1771 | +27 11 784 1771 |
| shevel@globalratings.net | modungoa@globalratings.net |
| Committee Chairperson | |
| Richard Hoffman | |
| Primary Analyst | |
| +27 11 784 1771 | |
| hoffman@globalratings.net | |
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria for Rating Corporate Entities
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Omnia Group Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Omnia Group Limited with no contestation of the rating.
The information received from Omnia Group Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), internal and/or external management reports, full year budgeted financial statements, most recent year to date management accounts (where necessary), corporate governance and enterprise risk framework, industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties. In addition, information specific to the rated entity and/or industry was also received.
