Benguela Global Fund Managers says that Omnia’s rising debt levels and ballooning working capital requirements were among the reasons it advised clients to dump the stock. Having sold out of Omnia at R68 a share, the fund manager is now alleging that management is destroying shareholder value and it is not adhering to ESG standards. CNBC Africa’s Karabo Letlhatlha sat down with Karl Givers, Head of Research, Benguela Global Fund Managers. WATCH: As Omnia’s shareholders approve restructuring plan, here’s why Benguela was advising clients to dump the stock
CNBC Africa offered Omnia a right of reply. This is what its CEO Adriaan de Lange had to say:
Thank you for offering Omnia the right of reply to the Benguela allegations. We prefer to engage directly with our shareholders and have been doing so on a regular basis, including with Benguela which is not currently a shareholder. The JSE has also been included in this engagement process. We have provided extensive and comprehensive answers to the first lengthy letter received and are in the process of answering the 58 page letter received two days ago. We are also arranging a meeting with Benguela and are prepared to engage with any shareholder who has questions.
We would like to give you some high level responses to the allegations and would also like to emphasise that Omnia is not comparable to Tongaat or Steinhoff. Omnia has published its results timeously with an unqualified audit report. In fact, at this point, Omnia is in a solid position, with a robust business, a short term liquidity bridge loan and the 98% approval by shareholders yesterday of the R2 billion rights issue.
The Board has assessed the independence of the non-executive directors and is satisfied that all demonstrate the required levels of independence to execute their duties. Depending on their tenure, members retire annually and stand for re-election at the AGM at which all shareholders have a vote. Rod Humphris, the non-independent chairman for the past 2 years has recently retired from the board and has been replaced by the lead independent director, Ralph Havenstein.
With approval of shareholders, Omnia has long term and short term incentive plans for management to guard against short term pursuit of revenue at long term cost. The current schemes are under review and shareholders will be engaged before they are finalised.
Omnia is aware of and supports audit firm rotation which will be mandatory from 2023.
Allocation of capital
Omnia concluded the acquisitions of Umungo and Oro Agri after in-depth research, thorough and intensive due diligence, including comprehensively investigated historic earnings levels, board engagement, independent finance, legal and tax advice, and valuation. The expected level of earnings did not immediately materialise and was exacerbated by the economic headwinds which ultimately culminated in the decision to de-gear and restructure the debt facilities.
Our SENS on 23 April was factually correct at that time: Omnia was involved in restructuring its debt, but the nature and extent was not yet clear, no repayment of any debt was required and there was no requirement for recapitalisation. The announcement did not provide assurance that there would not at a future time be a need for recapitalisation. The SENS announcement clearly stated that once the process was complete, the outcome would be communicated. The 30 May announcement, at the conclusion of the process, contained the decision to announce a rights issue.
We acknowledge that we experienced a series of negative factors: severe weather patterns, challenging financial year, difficult operating environment. We had used retained earnings to grow and found ourselves exposed. This led to fast accumulation of debt.
As noted in our recent results, we have implemented a targeted plan. We have new systems and revised processes, improved risk management and governance. We will continue to review our business structure, streamline operations, extract more value and reduce costs. We believe in the intrinsic value of the Omnia business.
ADRIAAN DE LANGE