Johannesburg, 28 September 2018 – Global Credit Ratings has today affirmed the national scale Issuer ratings for Omnia Holdings Limited of A-(ZA) and A1-(ZA) in the long term and short term respectively; with the outlook accorded as Stable. Global Credit Ratings has concurrently affirmed the national scale Issuer ratings for Omnia Group Investments Limited of A-(ZA) and A1-(ZA) in the long term and short term respectively; with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Omnia Group Investments Limited (“Omnia Investments”) is a wholly owned subsidiary of Omnia Holdings Limited (“Omnia” or the “Group”), the JSE-listed entity. In turn, Omnia Investments owns an effective 86.5% stake in Omnia Group (Pty) Limited, which is the holding company for the various operating businesses within the Group. In view of the direct and integral linkages that exist between the operating companies housed under Omnia Group (Pty) Limited, Omnia Investments and Omnia Holdings Limited, Omnia Investments’ Issuer ratings are directly aligned to those assigned to the Group.
Global Credit Ratings (“GCR”) has therefore accorded the above credit ratings to the Group and to Omnia Investments based on the following key criteria:
Omnia is a diversified Group that supplies chemicals and specialised services and solutions into the agriculture, mining and chemical application industries. Using technical innovation combined with intellectual capital, Omnia aims to add value at every stage of the supply and service chain to enhance its customers’ performance, driving down Group costs and enhancing profitability. The Group leverages a vertically integrated operating model, continual investment in modernising and enhancing manufacturing capacity, as well as continued research and development aimed at sustaining a differentiated, customer-centric offering.
Cognisance is taken of the enhancement of the Omnia’s geographic and product profile on the back of capital light, bolt on acquisitions, the most prominent being Umongo Petroleum and Oro Agri, purchased for a combined consideration of R2bn, and funded from internal resources. Additional investment in the form of a nitrophosphate plant is under way (being funded by a R800m, 6.5 year facility) due to commence operating by 31 March 2019, while the Group is planning further expansion of its geographic reach and installed capacity via other smaller capex projects over the rating horizon.
Omnia is inherently exposed to the cyclicality of the agriculture and mining sectors, albeit control of the product value chain provides a sound baseline level of earnings protection. Agriculture revenues in particular have come under pressure on the back of a weak domestic economy and variable commodity prices, while Group margins have moderated over the five year review period. That said, FY18 saw Group revenue rise by 7% to R17.4bn supported by relatively sound Mining and Chemicals’ sales volumes, with the latter including revenue from Umongo Petroleum from 1 December 2017. The gross margin rose to 22.5% (FY17: 21.3%), bolstered by production efficiencies and some stability in the ammonia: urea ratio, while the normalised operating margin remained fairly stable YoY. Looking ahead, margin resilience is projected, to be supported by enhanced operating leverage and throughput from higher margin acquisitions.
While operations have historically generated sound earnings, intermittent working capital volatility and associated currency movements have driven variability in free cash flows. In this regard, Omnia reported a R767m operating cash outflow in FY18, largely due to an accumulation of inventory across all divisions, higher international order quantities, the inclusion of Umongo Petroleum, and slower paying debtors. Marked working capital pressure, internal financing of acquisitions and funding drawn for the nitrophosphate plant saw debt rise to R3.7bn (FY17: R1.2bn) and net gearing register at 42%, from an ungeared position in FY17, while net debt to EBITDA was conservative, with both metrics falling within management’s targeted limits. Albeit further facilities will be accessed for capex over the rating horizon, earnings-based gearing is expected to fall within the internal (and covenanted) threshold of 2x, while net gearing (before adjustments for goodwill) is set to be managed within the Group’s comfort level. Debt serviceability weakened further in FY18, albeit pressure is set to be alleviated by the contribution of acquisitions to the earnings profile.
Looking ahead, upward rating movement would be predicated on sustained earnings growth and sound debt serviceability supported by production and operating efficiencies, as well as the successful bedding down of acquired entities and timely completion of major capex projects. Conversely, unduly elevated gearing beyond internal comfort levels to fund capex or arising from unforeseen territorial risks would warrant negative rating action. Pricing pressures, adverse regulatory changes, or other environmental factors that materially constrain operating performance and credit protection factors would also be negatively considered.
|NATIONAL SCALE RATINGS HISTORY|
|Omnia Holdings Limited||Omnia Group Investments Limited|
|Initial rating (March 2009)||Initial rating (November 2016)|
|Long term: BBB+(ZA); Short term: A2(ZA)||Long term: A-(ZA); Short term: A1-(ZA)|
|Outlook: Stable||Outlook: Stable|
|Last rating (August 2017)||Last rating (August 2017)|
|Long term: A-(ZA); Short term: A1-(ZA)||Long term: A-(ZA); Short term: A1-(ZA)|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Committee Chairperson|
|Patricia Zvarayi||Eyal Shevel|
|Senior Analyst||Sector Head: Corporate & Public Sector Debt Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
Omnia Rating Reports, 2009-17
RATING LIMITATIONS AND DISCLAIMERS
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GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATE GLOSSARY
|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.|
|Covenant||A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Gearing||With regard to corporate analysis, gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds or by EBITDA.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Long-Term Rating||A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Operating Margin||Operating margin is operating profit expressed as a percentage of a company’s sales over a given period.|
|Risk||The possibility that an investment or venture will make a loss or not make the returns expected. There are many different types of risk including basis risk, country risk, credit risk, currency risk, economic risk, inflation risk, liquidity risk, market or systemic risk, political risk, settlement risk and translation risk.|
|Short-Term Rating||A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Working Capital||Working capital usually refers to the resources that a company uses to finance day-to-day operations. Changes in working capital are assessed to explain movements in debt and cash balances.|
For a detailed glossary of terms, please click here
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings 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 ratings have been disclosed to Omnia Holdings Limited.
The information received from Omnia Holdings Limited and other reliable third parties to accord the credit ratings included;
- Audited financial results per 31 March 2018 (plus four years of comparative, audited numbers)
- The results presentation and booklet for financial year ending 31 March 2018
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.
GCR affirms Omnia Holdings Limited’s rating of A-(ZA); Outlook Stable