OMNIA shareholders should be pleased that improved volumes, instead of higher prices, were the main reason for the diversified and specialist chemicals group's increase in revenue in the year ended March.

The company has been able to take advantage of a favourable macroeconomic environment, to which the stellar performance of its mining business bears testimony.

The agricultural business did not do badly either, also largely on the back of higher volumes.

Higher revenue in Omnia's mining business was mainly due to a 38% rise in volumes, with the balance attributed to average price increases.

Seventeen percent of revenue from the agriculture business was down to an increase in volumes.

Low manufacturing activity, however, continues to be a blot on the company's financial performance and is the main reason Omnia's chemicals business did not do as well as its other enterprises. The group does not expectat an immediate improvement in volumes in that business.

MD Rod Humphris says the company's aim to increase its operating margin to at least 4,5% is unlikely to be achieved in this financial year. The margin now stands at 2,5%.

A glance at the manufacturing index shows that activity levels are still relatively low compared with the past few years.

Tatenda Zingoni, chemicals, materials and food research analyst at Frost & Sullivan, the consultancy, says: "South Africa's manufacturing sector has been experiencing a slowdown, which has been compounded by the prevailing weak rand."

Mr Zingoni adds: "Omnia's decision to scale back on its polymer division production volumes, by 49%, was a well-planned strategic move given the prevailing conditions in the manufacturing sector.

"Although this resulted in a reduction in the contribution of the chemicals business to total group revenues, the company has managed to streamline its operations to focus its attention on areas with higher growth potential."

Omnia also needs to keep an eye on the dollar/rand exchange rate. A strong rand puts pressure on its selling prices and operating margins, and negates the benefits of higher international prices.

The company's customers, especially those of the chemicals business, struggle to compete in export markets and often come up against cheap, imported finished goods in the domestic market.

Mr Zingoni says Omnia's increased profit, on the back of its mining and agriculture businesses, is expected to be maintained. The commissioning of a new nitric acid complex in Sasolburg in March will ensure a ready supply of a key raw material for the group's manufacturing processes.

Nitric acid and ammonium nitrate are major components in the production of mining explosives and fertilisers, respectively.

Looking ahead, Omnia is optimistic. "The macro environment for next year appears promising, but will be strongly influenced by the direction of the global economy and the rand," it says. "Recent rand weakness will benefit the group and its customers. Interest rates are expected to remain at current levels for most of next year, while inflation is expected to be contained within the 6% limit set by the (Reserve Bank)."

The company expects the agriculture business to benefit from high product prices. "This should support generous planting levels, which, combined with rising international fertiliser commodity prices, bode well for next year," it says.

Omnia's agriculture business supplies granular, liquid and speciality fertilisers to individual farmers, co-operatives and wholesalers.

Mr Zingoni says continued growth in mining activities in West Africa is expected to continue spurring volume growth for BME, which, as a part of Omnia's mining business, supplies explosives to the South African open-pit mining and quarrying industry.

He says Omnia's sourcing of ammonia from Sasol and imports will provide constant and sufficient feedstock for its new nitric acid plant.

"Omnia's sourcing of ammonia from Sasol, and also importing (the chemical), brings diversification for this crucial input to the company's manufacturing processes. Such diversification helps prevent potential disruptions to production activities, emanating from supply-chain interruptions and the impact of currency fluctuations," Mr Zingoni says.

njobenis@bdfm.co.za