Omnia's turnaround man Seelan Gobalsamy: 'We are still not distressed sellers'
After Seelan stabilised the company's crippling debt load, he lays out his next turnaround plans.
Omnia, a once-popular South Africa-based specialist in chemicals, explosives, and fertilisers, has reaffirmed its commitment to focus on addressing its crippling debt load after stabilising the business.
The company is in the throes of finalising a new debt package, including core facilities of R2 billion, of which R250 million is payable in two years, R750 million in three years, and R1 billion after four years.
Shareholders were asked to bail out Omnia in September 2019 through a R2-billion rights offer, months after the company reassured investors that there was no need to worry about a recapitalisation exercise. The proceeds were used to reduce debt.
At the end of September 2019, Omnia’s net debt decreased to R3.3 billion, from R4.65 billion at the end of the prior comparative period. Despite its debt problems, Omnia is still profitable.
It said on Tuesday that its headline earnings per share – a metric that excludes once-off gains such as the sale of operations – rose to 49 cents, from a headline loss of 122 cents in the prior comparative period. Omnia reported an after-tax profit of R35 million, having reported a loss of R93 million previously. M&A Africa spoke to Omnia CEO Seelan Gobalsamy (pictured) about his plans to further stabilise the 66-year-old company.
M&A Africa: What was your focus during Omnia’s interim reporting period to stabalise the company?
Seelan: My job was to come into Omnia and create stability. The company was over geared and we were unsure about our capital structure. In the first six months of the year we spent a lot of time settling our capital structure. We did the rights offer and put in place a bridge loan and we are now taking out the bridge loan.
What we are now showing is a reduction in debt and showing an improvement in our net debt-to-Ebitda (earnings before interest, tax depreciation and amortisation) ratio based on a sustainable impact. (Omnia’s net debt to twelve-month rolling Ebitda ratio was down to 2.35 compared with 4.50 during its recent annual reporting period). The package has been approved and the banks have backed it. There is no risk in terms of the package.
What the package does is that it will ensure that Omnia is sustainable going forward. The crisis we had of being highly geared is a bit gone. We have made good progress in our turnaround plan but there is still a lot of hard work to do over the next few years.
M&A Africa: What is your debt reduction targets?
Seelan: With the debt package, we said we want R3 billion of core debt. We don’t believe that the company should have core debt of more than R3 billion and R1.8 billion of working capital. In total it’s R4.8 billion of debt. That is a sustainable debt for the company to trade over the next few years. I still want to reduce the debt further. The management team are focused on cash generation and reducing our working capital and focusing on our capital expenditure. If we sell non-core assets and generate cash, we will be able to reduce our core debt.
M&A Africa: Is Omnia at a point where it’s willing to sell assets to free up some cash on the balance sheet?
Seelan: We are still not distressed sellers as our debt has reduced substantially and our operational delivery has been pleasing. There is no need to sell anything now on a distressed basis. The company is stable. Because the company has been around for 66 years, we might look at a warehouse or land that we own to sell. We are not a distressed seller of our business holdings. We will review some of the geographies we are in and potentially stop some product lines.
We will do a strategic review, which we will announce in the middle of next year, of what the company will look like over the next three to five years. The review will inform what Omnia’s core or noncore and proposition will be in the future.
M&A Africa: Is Omnia at a point of being able to pay dividends?
Seelan: From last year to this year, it has been an absolute stark turnaround. It is seldom to have a company that was so distressed pay out a dividend. We won’t pay out a dividend while we have just come out of a distressed environment. We have to take all the money and pay down debt.
M&A Africa: What are the next steps in Omnia’s recovery and stabilisation?
Seelan: We want to increase our return on capital. We have made some really good investments and Oro Agri (a developer of ecologically safe crop protection products and liquid fertiliser) is one of them. We need to unlock the value we have in the asset. We also built a new plant in Sasolburg and we need to unlock the value there. We need to identify the returns we want from those investments.
I want to simplify the business of Omnia. We have to identify what is core and competitive operations and what is not. Selling non-core assets might not be a major unlock of cash, but it will help.