Johannesburg, 31 July 2015 — Global Credit Ratings has today affirmed the national scale ratings assigned to Omnia Holdings Limited of A-(ZA) and A1-(ZA) in the long term and short term respectively; with the outlook accorded as Positive.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Omnia Holdings Limited (“Omnia” or “the Group”) based on the following key criteria:
Omnia has an established position as a leading regional producer and supplier of fertilizers, mining explosives and industrial chemicals. This position is supported by its substantial production capacity, as well as the ongoing development of specialised products and solutions to service profitable market niches. Moreover, the Group has a strong market position in two distinct industries (mining and agriculture), which benefits it in terms of earnings diversification.
Omnia’s revenue has increased at a compound annual growth rate (“CAGR”) of 12% over the five year review period to an all time high of R16.9bn in F15. Similarly, operating profit more than doubled from R715m in F11 to R1.6bn in F15 on the back of higher internal nitric acid production, which reduced the need for imports. Thus, despite the persistent unfavourable ammonia to urea ratio and disruptions to the mining sector, the operating margin was largely stable at 9.3% in F15 (F14: 9.2%).
Notwithstanding the sound growth, operations are characterised by the seasonality of the agriculture business, whilst changes in exogenous factors affecting agriculture can impact working capital utilisation. Thus, owing to the late season drought which reduced demand and in part led to higher inventory levels, Omnia reported a higher R878m working capital absorption in F15. Inventories are expected to unwind during F16.
As a consequence of the working capital pressure, gross debt almost doubled to R1.2bn at FYE15 (FYE14: R673m), of which 95% was short term. However, the Group remains lowly geared, with net gearing of 13% at FYE15 (FYE14: 6%) and net debt to EBITDA of 43% (FYE14: 19%). Net interest coverage declined to 10x in F15 (F14: 13x), albeit remaining high. Further comfort is taken from the substantial funding facilities available to Omnia.
Looking ahead, strong cash flows and ample funding capacity should allow Omnia to comfortably fund potential acquisitions or medium term capex projects. While the challenging operating environment may curtail volumes somewhat, increased efficiencies and greater internal nitric acid production are supportive of stable margins going forward.
While the uncertain operating environment is a constraint on the ratings, positive rating action would be driven by the further operating efficiencies derived from the nitric acid plant, leading to sustained growth in operating profit and strong cash flows. Conversely, the rating could come under pressure if unexpected commodity price volatility materialises, necessitating increased short term debt to fund working capital requirements, and thereby increases gearing metrics materially above current levels.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (March 2009)|
|Long term: BBB+(ZA); Short term: A2(ZA)|
|Last rating (July 2014)|
|Long term: A-(ZA); Short term: A1-(ZA)|
|Primary Analyst||Secondary Analyst|
|Eyal Shevel||Farai Mauchaza|
|Sector Head: Corporate Ratings||Junior Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Corporate Entities, updated February 2015
Omnia Ratings Reports 2009-2014
RATING LIMITATIONS AND DISCLAIMERS
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GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATE GLOSSARY
|CAGR||The compound annual growth rate is the year-on-year percentage growth rate of an investment over a given period of time. It is found by calculating:|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Commodity||Raw materials used in manufacturing industries or in the production of foodstuffs. These include metals, oil, grains and cereals, soft commodities such as sugar, cocoa, coffee and tea, as well as vegetable oils.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|EBITDA||Earnings before interest, taxes, depreciation and amortisation is useful for comparing the income of companies with different asset structures as it calculated before excluding non-cash expenses related to assets.|
|Interest Cover||Interest cover is a measure of a company’s interest payments relative to its profits. It is calculated by dividing a company’s operating profit by its interest payments for a given period.|
|Liquidity Risk||The risk that a company may not be able to take or meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets.|
|Operating Margin||Operating margin is operating profit expressed as a percentage of a company’s sales over a given period.|
|Operating Profit||Profits from a company’s ordinary revenue-producing activities, calculated before taxes and interest costs.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Working Capital||Working capital usually refers to net working capital and is the resource that a company uses to finance day-to-day operations. It is calculated by deducting current liabilities from current assets.|
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 Holdings 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 Holdings Limited with no contestation of the rating.
The information received from Omnia Holdings Limited and other reliable third parties to accord the credit rating(s) included;
- Audited financial results per 31 March 2015 (plus four years of comparative numbers)
- Results presentation booklet for financial year end 31 March 2015
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
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.