Diversified chemicals group Omnia, which late last year shored up its creaky balance sheet with a R2bn rights issue, looks set to make painful adjustments to its agricultural division.
Correspondence sent to Omnia employees, issued at the end of April and seen by the FM, refers to a new operating model for the sprawling agricultural segment, which is mainly involved in the fertiliser market.
The correspondence, signed off by Omnia CEO Seelan Gobalsamy, advises employees across all levels in its regional agriculture business of an intention to implement a new business model.
Some investors who have had sight of the internal correspondence are now fretting over Omnia’s performance for the full year to end-March.
The group has not yet issued a trading statement, but did give a broad Covid-19 update earlier this month.
That update simply reminded the market that Omnia provides critical products and services to the agriculture, mining and chemical industries that directly affect food security, electricity supply, clean water and the production of fuel. "As such, specific areas of our business are operational where we have obtained the necessary approvals to be listed as an essential service."
Omnia said the extent of the shutdown and the effect of Covid-19 on its business were continually being reassessed to deal with anticipated outcomes. There was no reference to the group’s trading performance in the second half of the financial year, or the proposed restructuring of the agriculture division.
Some investors questioned why the restructuring of the agricultural segment had not yet been communicated to the market.
Jittery shareholders probably won’t be placated by the more revealing communication to employees — which acknowledges that Covid-19 "has put unprecedented strain on our employees and business operations".
Gobalsamy’s note says: "The proposed operating model changes will provide an opportunity for the agriculture solutions and manufacturing parts of this division to work more efficiently, become more agile and adjust more quickly to new economic circumstances and opportunities in the market. This in turn will allow Omnia to remain competitive."
Local agriculture has been a sore spot for Omnia in recent years.
The group’s total agricultural division posted a R98m operating profit and a smaller pre-tax loss of R43m in the half-year to end-September. This was thanks mainly to strong performances from the international and biological divisions.
But during the interim period, Omnia’s SA agriculture division — the biggest business slab by far — generated flat revenue of R3bn, with operating profit and profit before tax still in the red to the tune of R46m and R143m respectively.
In the interim period, SA agricultural operations struggled with subdued commodity prices. Omnia’s local agriculture business is seasonal and sales tend to be weighted towards the second half of the financial year.
Omnia’s share price has drifted down from about R25 in mid-April to R21.20 at the time of writing. The share price was about R55 a year ago.
Sources in the fertiliser sector say the proposed changes at Omnia’s agricultural business are long overdue.
One says: "The fertiliser business has been complacent, perhaps even arrogant, for too long. It’s top-heavy with probably too many layers of management."
He stresses that the fertiliser market has evolved a great deal in recent years. "Omnia has become a volume-driven mass producer and lost focus on what the customer needs. These days supply chain optimisation has become a key consideration in driving fertiliser businesses."
Reading between the lines of the company correspondence, there could be a radical restructuring of Omnia’s agricultural segment.
Employees within the agribusiness will be invited into a consultation process to explore the proposed operating model, and Omnia will be applying to the Commission for Conciliation, Mediation & Arbitration to assign a facilitator to guide the consultation process.
The employee communication also adds, ominously, that the Covid-19 crisis has made it imperative to reduce the group’s cost base sooner — "making some tough decisions unavoidable".
One of these "tough decisions" is that Omnia will not grant salary increases for the new financial year.
These worrying developments come hard on the heels of Omnia confirming a cyberattack on its IT infrastructure in March.
At the time, Gobalsamy gave the assurance that Omnia’s production facilities and operations remained unaffected by the cyberattack, and that the business would continue to serve its customers.
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