Omnia Holdings Limited (OMN) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Omnia Holdings 6-month results as at the 30th of September. Today, what you will see is yet again a set of results that demonstrates our resilience, our team's delivery on our turnaround plan, and we will walk you through a few slides to describe this. This has happened under some of the toughest operating conditions not only in SADC but across the world, while all of our people in the various continents deal with not only the health and safety issues of COVID but also the disruption to supply chain, the disruption to businesses and the disruption to their livelihoods. So if I can move on to the next slide. Thank you. If we move to the next slide. Thank you. I want to kick off first with our safety performance. I think our shareholders and all of our stakeholders know that safety is incredibly important to us as a business and a management team. And all of the impact we make on people's lives is really underpinned by a safety culture. A pleasing performance is that we've been able to improve our recordable case rates and improve our safety track record during these difficult conditions. Particularly encouraging is our Chemicals business and our Explosives business where we produced extremely low recordable case rates. And it just shows you that when we have a team that are focused on safety, what we can achieve in these difficult times. If I move to the next slide. Just to remind all of our shareholders and our investors, more so than ever is the impact that Omnia has on the lives of our people across the world relevant. Not only do we protect lives by providing food security, by providing chemicals, water sanitizing, hygiene products and chemicals into the food space, but we also create sustainable livelihoods by the impact our Explosive business has in mining and by the impact our Chemicals business has in manufacturing. This has been an important bedrock for our business in trading during this time to ensure that the people of the world have access to the chemicals and these essential services. Whilst coronavirus and the impact of it has been devastating to a number of businesses and has impact our business, we [ continue ] to make this impact, positive impact, on the lives of our people across the world. If we can move to the next slide. The impact of COVID has been across various parts of our business. Firstly, our [ people's ] well-being. We're focused on helping our employees, communities, partners and staff to ensure that they can deal with the change, change in working conditions, change in the way we operate in our plants. We have seen impacts in supply chain impacts across borders. A number of our product has to move from Sasolburg, South Africa into SADC and other parts of the world. And a number of our [ ingredients ] come from suppliers locally that have had impact and have been impacted by COVID. And some of our product comes from the offshore market, which has also been disrupted. I think it's really pleasing to say that with the discipline and the activeness of our supply chain teams, we've been able to supply wherever there's demand, wherever there's a need for chemicals, for fuels, for explosives. Our supply chain's agility has been able to deliver those to our customers. We've also focused during this difficult time to continue our cash management. We've continued to implement our turnaround strategy, cost reductions. We've continued to meet the deliveries and the commitments we've made to our shareholders over this difficult time. A lot of these processes had to be done virtually, which added strain to our business and added strain to our teams. And at the same time, we've been attracting new customers. So most of you know, we've been mobilizing a large mining client, and that has gone well during these difficult times. From an agriculture perspective, it's the busiest time in our business right now. All of [ our plants ] have been working at huge capacities to ensure that we have the fertilizer available for the planting season, and that has also gone according to schedule. Our plants, our production managers, our manufacturing leaders have done an incredible job to navigate the difficulty that COVID has placed on supply chain and operating conditions to ensure that our Agriculture and Explosives businesses are able to weather the storm. We've been engaging with regulatory bodies and other industry bodies to see where we can help the various initiatives that can help societies with COVID across the world. If I can move to the next slide. So just to remind our shareholders, we've put out a notice a few weeks ago around Oro Agri. So Oro Agri, the Board has recommended that we -- to shareholders that we sell the business. That general meeting is scheduled for the 14th of December. And if we're looking at the potential upside in the business, the price presented by a credible purchaser and the investment needed in the business, we believe it's the right value-accretive thing for [ our ] business to dispose of Oro Agri. Stephan will speak a little bit later around how Oro Agri's treated in our accounts, but we've accounted for it as a discontinued operation. And in various part of the accounts, we'll talk about how it [indiscernible] the numbers. If I can move to the next slide. So getting into the meat of what we are to speak about from a financial perspective. From a revenue perspective, our revenue has been stable, an absolute incredible performance from our teams, our revenue sitting at ZAR 8.2 billion for the half year. We saw an increase on operating profit, as you can see on the chart, particularly pleasing, and you'll see that a little bit later when we talk about working capital and cash, a substantial decrease in our interest [ pool ], around 50% decrease in that. From a profit after tax perspective, from continuing operations, our profit after tax has increased ZAR 26 million to ZAR 239 million for the reported period. Similar increases are seen in our earnings per share, from ZAR 0.33 to ZAR 1.43. And our headline earnings are up from ZAR 0.43 a share to ZAR 1.41. Our EBITDA has also increased by roughly 11% to ZAR 742 million. And I think a little bit later, [ I'll go back into that ], but our net debt has decreased from year-end from ZAR 3.3 billion to ZAR 1.9 billion shows the disciplined execution on free cash flow. We'll talk about working capital. We'll talk about CapEx and expenses a little bit later. Other 3 bullets on the slide is really our net debt-to-EBITDA ratio. That has also improved fairly significantly. And from a working capital perspective, our teams, as they have adjusted our business for the impacts of COVID, have also been incredibly prudent to manage our working capital differently. And we've seen another sharp decrease of working capital from ZAR 4.6 billion to ZAR 3.7 billion. We should note that, that includes an exclusion of Oro Agri, Stephan will talk about that a little bit later, and then an increase in net asset value by roughly ZAR 0.5 billion. If I can move to the next slide. Whilst the numbers are important, it's also important to make a positive impact in the society and the business we operate in. And I think the first thing to say is that we've been able to improve our B-BBEE rating from a Level 3 to a Level 2. I've mentioned earlier, our recordable case count is down from 0.52 to 0.3 in difficult trading conditions for all of our [ people ]. Similarly, our global credit rating has also improved as our cash and our debt position and our balance sheet has strengthened. From a BME perspective, BME has now executed on the largest detonated blast in South Africa. We hold the world record for the largest blast in Australia. And particularly pleasing to see our Explosives business grow, secure new clients and actually continue to invest in innovative technologies. Our Protea Mining business, [ Protea Mining ] Chemicals business has also been successful in a product innovation that will help copper and cobalt mines reduce product contamination. In delivering all of that, we've also been able to reduce our emissions from 150,000 -- to 150,000 tonnes from 580,000 tonnes. We replaced our EnviNox converter, and it shows -- we used the opportunity when plants were shut early in the lockdown to actually do some maintenance and improve the efficiencies that we will hopefully see in future periods. If I can move to the next slide. So just to take a step back, we promised our investors and shareholders that we will implement a stabilization and turnaround plan for the business. We've progressed well on the stabilization part of the business. We've executed on the equity raise. We've executed on a debt restructure. And we promised that we will focus on fixing various processes in our business that will reduce costs, reduce our financial leverage and increase our margins. What you'll see coming through today is some of that delivery around that turnaround plan. We also have a lot more to do. So there's still more synergies that we will capture over coming reporting periods. There's more margin enhancements that we will capture over reporting periods. And we will continue to implement our new operating model that will [ simplify ] supply chains, continue to see us invest in capital-like expansion and continue to see us invest in new products and new technologies both in Agriculture and in Mining. All of this needed to be done in an extremely difficult time. If we cast our mind back to February, March of this year, we entered this reporting cycle with a nasty cyberattack. The resilience of our leadership teams and our staff was tested to recover our systems and our processes, and all of that has been done successfully. I think it's really helped us to cope with some of the other changes and shocks to the supply chain and the impacts of coronavirus across our business. Broadly, what you will see is that we've reduced our cost base. We've managed our working capital well. We increased our stocks ahead of the planting season. We've managed our CapEx well. And we've been able to weather the storm of the supply chain disruptions that we've seen across the business. We are increasing the strength of our internal capabilities, our leadership team and our technical people. And we continue to invest in our new business model and ensure that Omnia is sustainable for years to come. If I can move to the next slide. What we know is we've got a lot more to do, so there's still value we can generate for our shareholders. We will continue to invest in winning in customer markets. There's opportunities to grow in selected geographies for both our Agriculture and our Mining business. You will see a stellar performance from our international fertilizer business, excluding the Oro Agri part of it, our humates business out of Australia. And we will continue to embrace digital services. We will continue to embrace product innovation and do all of that by being good stewards of the environment and good stewards of safety. In any business, the people, the culture is incredibly important, and more so even now where most of our people are battling with the emotional impacts of COVID. So we will continue to invest in our people. We will continue to get our people involved in corporate social initiatives. And there's a lot of hard work that we still need to do there in years to come that will unlock more and more value for Omnia and our investors going forward. If I can move to the next slide. Next slide is the story that most of our shareholders have walked over the last few years with us as a team. And what you see is in just casting our minds back a little bit, what you see is in September 2017, September 2018, a huge increase -- and maybe let's just focus on the debt line or the green line, a huge increase in the debt in our business. That was -- that occurred due to the investment we made in the nitrophos plant, new systems, we purchased Umongo, purchased [ Oro ] and, at the same time, invested heavily in inorganic expansion in our Explosives business. We saw an increase in working capital and costs. And sadly, that results in us being over-geared. We promised at the time of the rights issue that we will focus on free cash flow. We will focus on cash generation, and we will manage our business in a disciplined fashion. And what you see, if we just follow the green line, you can see the huge reduction coming just before September 19, which is the rights issue. And post then, what you see in our business delivering cash and free cash flow as promised. We continue to reduce our costs. We continue to manage our CapEx well. We continue to manage our working capital well. And all of our teams focus on getting the return on the capital previously invested. And I think there's a lot more value we will generate there in coming reporting periods. So if we move to the next slide. And Stephan will talk in a lot more detail about each of our business units, but just to talk through the 3 sectors. From an agriculture perspective, we've seen a particularly strong performance from our International businesses, our Brazil, Australia and SADC businesses. We saw a strong performance from RSA business, some of the cost savings coming through and the agility of our distribution teams and our supply chain teams to actually change the way we operate to weather the effects of the pandemic. So a nice increase in profits; and obviously, from a margin perspective, a nice uplift. I think it's important to note that from an agriculture perspective, we are at our peak of our season, so we can all see that it's a great rainy season for our farmers. I saw a few pictures yesterday of some of the plantings happening. And currently, all of our deliveries are full force. And the second half of the year is really the telling period for our Agriculture business in the local business. From a mining perspective, the Mining business was initially disrupted fairly heavily in South Africa. The initial level 5 lockdown, a bit difficult to understand for mines. And when mines reopened, it was a painful process to get them going again. So we saw a drop-off of demand locally. However, the local mining teams focused on changing the supply chain, reducing costs, and we were in the process of mobilizing for our new mining client. So the local business performed reasonably okay. We saw the same disruptions or similar disruptions more so from a supply chain perspective in our International Mining business, and that was also impacted by coronavirus. So what you see is a slight decline in our profits and a slight decline in our margins from the International business. From a chemicals perspective, a particularly pleasing performance in Protea and in Umongo. Whilst there's been a decrease in revenue in Protea, both businesses were able to increase gross margins and increase profits. So what you see is an increase in the margin from 3.5% to 5% and a slight increase in the earnings. Particularly pleasing to see those teams change and act as swiftly as they have. If we can move to the next slide, which is our EBITDA analysis. And what we tried to do there was to show you that we've had an increase in EBITDA for the half year. And for shareholders who know us for a long time, you know that our half year is -- the 6 months is a slow part of our business. And what we've been incredibly pleased to show is an increase in EBITDA even though we face so many macro headwinds. From a normalization perspective, if you look at our 5-year comparison on the right-hand side of the slide, we just show how our EBITDA is tracked to previous years. And what you do see is a rebasing of our business, see a level of normality coming back, and you see some of the early benefits of the restructures, the new operating model actually delivering value. There's obviously still a lot we need to do going forward that will deliver more value in coming years. If we move to the next slide, which is an analysis of our debt, and Stephan will talk about this a little bit later. But what we see is the debt reducing from ZAR 4.6 billion at half year in 2019 all the way down to ZAR 1.4 billion in the reporting period. And that excludes the IFRS 16 lease liabilities. Particularly encouraging is that the business generated cash in the first 6 months of the year, which is the time when we spend a lot of money in terms of working capital and stock buildup for the planting season. So then the next slide really unpacks the working capital for you. Yet again, we show a reduction in working capital. The biggest contributor there is our Chemicals cluster. Both Umongo and Protea reduced working capital by ZAR 200 million each. That was done off the back of seeing the slowdown in demand and revenue and the supply chains and management teams changing the stock levels and changing the way we buy during this period. We also saw capital -- working capital well managed in our BME business. Even though the business took on board a new client, we were able to keep the working capital largely flat. And then in our Agriculture business as well, we promised a changing or rebasing of the working capital profile. And really, what you see is what the management team in Agriculture were able to do in the prior year playing out very similar in the current year where we're rebasing the working capital based on various efficiencies in the supply chain and production. It does put a lot of pressure on the [indiscernible] can tell you it bodes for some very interesting discussions because often we're producing at slightly different times of the year, and we're producing different products at different times of the year. But what you can see is the benefit of that in terms of rebasing the working capital particularly pleasing. At the same time, from a stock perspective, we have increased our stock position, so -- which is normal. Our inventory levels have gone up from ZAR 3.6 billion at the end of March to over ZAR 4.3 billion at the end of September. We've supplied a large amount of fertilizer into the Zambian market. And clearly, we are supplying, and the deliveries are going out currently into the local market. The next key indicator that we look at is our CapEx, so if we move to the next slide. Our CapEx has also been well managed. The teams rethought about when to do maintenance. When we do shuts, those shuts had to be adjusted in terms of the pandemic, and they will be adjusted again going forward as we plan for the next planting season. Most of our investors know we've got a long business cycle, so our teams are focusing now on planning the production cycle for 2022, planning the shuts and planning when the plants will produce what. What you can see is our CapEx is well managed. We've been targeting roughly ZAR 550 million of CapEx spend. Stephan and I were comfortable to state we'll reduce that and probably won't hit that in the current year going forward. So we've put a revised estimate of ZAR 500 million for the future year ahead. We've obviously been able to do all of this with taking on board a new BME client and spending some CapEx on that and ensuring that our plants are maintained well and replacing the EnviNox system to reduce the carbon footprint of the plants. And if we just step ahead to our nitrophosphate plant, a number of our shareholders were concerned about this plant, and I've given an update about the plant at our previous presentations, could we move to the next slide? Thank you. So just the nitrophosphate plant, we've budgeted an expected capacity of around 60%, which is in our financial plans for FY 2021. And the plant has reached instantaneous capacities way above that and above 82%, which is what we reported at [ year-end ] as well. So this means we are on track to achieve the expected EBITDA benefit in the current period. And obviously, most of that will come through in the second half of the year as the stocks leave us and the planting season occurs in the Agriculture business. Thank you. So I'm going to hand over to Stephan now who's going to talk in a little bit more detail around our financial results. Stephan, can I hand over to you?

Yes. Thank you, Seelan. Good morning, good afternoon, maybe good evening to all our stakeholders around the world. Just before we jump -- I hope everyone can hear me clearly. Just before we jump into the financial numbers, maybe as Seelan touched on the Oro Agri, the proposed sale and maybe just the treatment for the non-accountants in the room, is that Oro Agri is reported under our Biological segment. And as Seelan mentioned, we disclose it as discontinued operations. So how that filters basically into the income statement, we said it all gets lumped together as a one-liner, and it also gets [ reflected ] at the comparative numbers, which I'll touch on now. And in the balance sheet, unfortunately, we don't adjust the comparative numbers because it is at a specific point in time. And at year-end, [indiscernible] you will see all the assets get lumped together as assets held for sale and [indiscernible] also gets put into a line, which I'll touch on now. So if we look at the income statement. The revenue were fairly stable at ZAR 8 billion compared to prior period. But [indiscernible] pleasing sign was the gross profit that was up by 9% to ZAR 2 billion and the gross margin that was up by 25%. That gross margin increase is due to supply chain and production efficiencies which cuts across all our business units, [ especially on ] chemicals cluster, where there was a change in the product mix. If we move down the income statement and we look at the distribution and admin expenses, quite pleasing to see that we were down by 3% and 2%, respectively. And that's on the bulk of a lot of the cost-driving initiatives across all our businesses as well as the impact of COVID-19 of restricting to travel affected our businesses. If you look at the other operating expenses, you will see there was a big increase in other operating expenses. The big driver there was the foreign currency movement between the periods as well as the proposed Oro Agri sale. There was an uncertain tax position that was closed out, and you will see that associated entry sitting in the tax line, which I'll just touch on now. If you move further down to the impairment losses, even though fairly small on our income statement, you will see a big jump in there. On the back of COVID-19, biggest contributing factor there is coming from our Zambia businesses. But we're comfortable with our Zambia business has got the necessary financial instruments in play, that will be reversed out in the second half of our financial year. That all leads into our operating profit of ZAR 340 million, which is up 25%. I suppose the most pleasing sign is the operating margin, the uptick of 4.2% compared to a 3.3% in the comparative period. If you move further down to the finance expense, Seelan touched on it, you will see there was a big drop in the finance expense, which is quite pleasing because of all the cash that the businesses has generated. I spoke about the income tax line. You'll see the effective tax rate is sitting at 9%. And if I take into account the effect of the uncertain tax position that was reversed out, effectively, the tax rate is sitting at -- on a more normalized basis at 33%. Moving down to our continuing operations at ZAR 239 million versus ZAR 26 million on comparative period. And then the Oro Agri showed as a discontinued operations of ZAR 13 million versus ZAR 9 million in the prior period, which gives an overall profit for the period of ZAR 252 million versus ZAR 35 million in the prior period. If I just look at the movement in the operating profit sitting in the segments, you'll see the biggest chunk that will impact us is coming from our Agriculture business. And that cuts across all our Agriculture businesses on the local front, but most probably on the international side has a big impact. You can see the challenges that faced our Mining business in South Africa but mostly on the international side. Our Chemicals business performed really well on the back of the impact of [ COVID ] in the centralized costs I've just stripped out, the biggest impact being the proposed Oro Agri transaction and the uncertain tax position and the foreign currency movements. Maybe just other to notice the -- was the cyberattack and certain restructuring costs were sitting in there. Also the Biological, we tried to strip out, and you'll see, which I'll touch on now, were fairly flat year-on-year. But if I start unpacking our Agricultural business, starting with our South African business, quite pleasing to see the uptick in revenues. A pleasing sign is uptick in operating profit and in the associated margin. It's fairly early days in our Agricultural South African business, but a good expense management as well as the supply chain optimization and efficiencies is really starting to come through the numbers. You can see the strong performance by our International business, which is coming from the humates side up in Australia and Brazil did a nice uptick, while a strong performance by our Zambia business picking up additional volumes early in the season. In Zimbabwe, hyperinflation is still a big focus and area for us to maintain and to manage. And we and the team did a fantastic job [indiscernible] to not increase the associated risk from only our perspective. If you look at the trading business, it's fairly small because we're starting to wind that down leading up to year-end. And that Oro Agri business or the Biological business, you will see a flat year-on-year, and that was on the back of the impact of COVID in Brazil, Europe as well as the U.S.A. Over to the Mining business, this is the South African business. First, you can see the impact of COVID due to the hard lockdown in the first 6 weeks of our current 6-month period. But the pleasing sign is the management action from [indiscernible], as you can see, it's starting to bear fruits. The uptick in operating margins, which is quite pleasing. If you take into account mobilizing for the new mining contract happened in the first 6 months of our current financial year, a pleasing sign is a uptick in our margins, getting closer to 9%. If you look at the International business, you can see the downturn in revenues, but the concerning side is the downturn in the operating profit and the drop in the operating margins. The biggest impact was COVID hit West Africa really hard from a customs point of view as well as border closures and logistical issues that the business dealt with. As well, we had a ramp-up of our Canada business. And Protea Mining had much lower sales volume coming through our [ Namibia ] business. If I step over then to our Chemicals business, starting off with Protea Chemicals, Seelan touched on it. You can see the backdrop in the revenue side. Quite pleasing to see our operating profit actually stayed intact and really good to see the operating margin increase from 2.7% to 3.9%. That was on the back of a tough COVID environment during hard lockdown, also increase in sales on the cleaning side of the business. Also, there was a big impact on the business to continue to improve the margins, and there was also a reduction in fixed costs, which is quite pleasing to see coming through the numbers. If I step over to our Umongo business, also hard hit by COVID during hard lockdown. In the early parts of our 6-month period, you can see the revenues were fairly flat, but nice to see a big uptick in the operating margins, going up from 6.1% to 8.7%. If I move over to our statement of financial position, maybe just 2 or 3 things to highlight, more specifically relating to Oro Agri. All the assets held for sale you can see get lumped together in the ZAR 2.3 billion as assets held for sale. But all the associated liabilities could lump together as ZAR 400 million, liabilities associated with those assets. But I suppose a pleasing sign to note is the net debt and the net working capital. The net debt reduced from half year last year to half year this year by 41.61% from ZAR 3.3 billion to ZAR 1.9 billion, but quite pleasing to see that our net debt were fairly stable from year-end if you take into account the first half of our year is building up stock for our summer planting season. That filters also through into our net working capital, which you can see was a big drop of roughly about ZAR 600 million if you take Oro Agri into account from the comparative period. But from year-end to half year, you can see that was fairly flat, as Seelan mentioned, and we [ are actually ] starting to stabilize net working capital. And then lastly, if I touch on the cash flow statement, the cash generated from operations was nicely up by over ZAR 700 million for the 6-month period. Also, the nice drop in finance charges and a good control on the capital expenditures, as Seelan mentioned. I suppose all falls into the free cash flow, and it's really nice to see for the 6-month period, we've actually generated free cash flow of just over ZAR 200 million compared to the outflow of ZAR 400 million in the prior period. I'll then just hand it over to Seelan for the conclusion.

Thank you. Thank you very much, Stephan. If [indiscernible] with a few thoughts, I think we can move to the next slide. Thank you. So I think while there's still a number of short- and medium-term headwinds not only in the local markets but also in the international markets, I think there's a number of long-term macros that will recover and will be in our favor. We are concerned about the structural issues in the SADC economies. A number of the economies have debt issues, sociopolitical issues. And I guess the global uncertainty that we're going to live with, with the pandemic will be with us for a while, so we will continue to be prudent in managing our business, our cash, our balance sheet, but we will look for opportunities that allow us to enhance and increase the return on capital to our shareholders. In the long term, the macros will recover. We've seen international crop prices rise. We've seen and we know that governments have to get mining sectors to grow and expand and get back to the levels of the past, and we will see growth out of those. And I think we also know that largely in Agriculture and Mining, we are essential. So the new buzzword of essential services that's been birthed was the pandemic. We do know that being in essential services really allows you a lot of flexibility and a lot of resilience through the downside that we've seen. We're also in areas that are faster growing like our biostimulants business in Brazil and Australia. Our coatings business, a number of our businesses, hopefully, the international ones will grow ahead of inflation and the local ones. If I can move to the next slide. My sense is our business has strengthened. We're now a lot more robust than we have been. Our balance sheet is stronger. Our management teams and our staff are focused on changing. There's a number of changes we still need to put in place. And I guess that will also enhance the long-term shareholder value and improve the return on capital invested. We know our business is predominantly essential services. We will continue to do what we do in a safe manner. We will continue to be good stewards of safety, good stewards of the environment. We have a lot more to do in terms of operational excellence. Whilst we've put in place the new operating model and we've seen benefits come through, there's a lot more we still have to do. We've got plans to leverage our supply chain further, look at our group and operate as one [ institution ], improve our plant reliability by setting up a manufacturing segment focused on increasing the productivity of our plants and ensuring that they are synergized across the different businesses that use the product that they manufacture. All of that will hopefully lead to further margin expansion. We're not [ happy ] to be yet. There's still a lot more to deliver. And there's still more margin enhancement that we need to deliver over the coming reporting periods, and we will do that in a safe and sustainable way. From a portfolio or an investment perspective, we will look at underperforming territories, underperforming businesses, and we will continue to manage them tightly and get them to the required return on capital. And as Stephan says, as a business as a whole, we will continue to increase the blended operating margin, which will, over time, increase the return on capital to our shareholders. There are certain core competencies that we've got that we will leverage, specific competencies in Mining and Agriculture, technologies, capabilities. We will continue to take those into the international markets. I think what we're learning is there are things we will do ourselves and there are things we will do with partners. So we will continue to partner with third parties to enhance our distribution. We do that in -- with our coatings business in India. We do the same in other parts of Africa. And we will strengthen our distribution capabilities with some of these great products and services that we've got. That will result in further diversification. So we will continue to diversify from a currency perspective and a geographic perspective. And we will continue to ensure that overall, our portfolio improves its return on capital and generates economic value-add for our shareholders. If we can go to our final slide. Just in terms of capital and distribution, we've done really well in terms of cash, working capital and reducing our debt. We will continue to focus on that. We will reduce -- we will take more cash generated to reduce our core debt and use working capital facilities to fund the cyclical working capital nature of our businesses, both Mining to a lesser extent and Agriculture to a greater extent. This will allow us flexibility to explore value-accretive organic and inorganic opportunities. It's fair to say over the last few years, we haven't unlocked all of the opportunities that were available to us due to our balance sheet. We're now able to do that. And I guess the cash generated from the proceeds of Oro Agri will firstly be used to pay down debt. And then at year-end, we will assess what our medium-term cash needs are. And in that context, we will consider resumption of an ordinary dividend or mechanisms to return any surplus cash to shareholders either by way of a special dividend, which I've said in our announcement around Oro Agri, or potentially share buybacks. And I think we haven't made any decisions on that right now. We will wait until our year-end result has been assessed. It's also the second [ half ]. It's our more -- it's our busier from a working capital, from a fertilizer and agriculture perspective. After the year-end, we will consider the cash distribution more prudently. It will also give us a little more insight to understand the impact of the second wave of COVID across the countries we operate. It will also give us a bit more time to understand the impact of the 3 vaccines, the distribution of those vaccines and what it would mean for the future period. If I can move to our last slide. So just in conclusion, what you are seeing is that, overall, our strategy is delivering. It's delivering really well. This is our third set of results where we are showing strong delivery and resilience in our team. We've seen a reduction in our debt. We're seeing an increase in free cash flow. We're seeing a recovery in our business. Our customers, our staff are all getting a bounce-back into their step, which is really great. We've demonstrated resilience in the face of a cyberattack, in the face of probably one of the most nastiest pandemics the world has seen. And against that background, we've been able to adjust our supply chains, adjust our manufacturing areas to actually deliver to our customers. Going forward, we believe there's more value we will unlock for shareholders. We will continue to manage our business prudently and carefully. We will be very prudent around any investments we make, whether they're inorganic or organic. And we will continue to focus on delivering on the required return on capital that we need to based on previous investments already made. We can see that from a cash perspective, the outlook looks good for us. And we will prudently consider any shareholder distribution at year-end once the Board has had time to look at the cash generated in the second half of the year. Finally, Omnia, we believe, is well positioned for growth in the long term and well positioned to increase shareholder returns in the long term. Thank you very much for dialing in today, and thank you very much for listening to Stephan and myself. You do know where to get hold of us if there's any questions or queries, but we will open up for some Q&A. So there's e-mails. You know where to find us if there's any questions or queries. We will open up for Q&A now. Thank you. Can I hand over to [ Louise ] or [ Garrett ] who will manage the questions for us?

[Audio Gap]

Thanks, [ Garrett ]. Stephan, can I ask you to answer that?

Yes. Sure, Seelan. Yes, thanks for the question. Yes, the current environment in Zimbabwe remains challenging with hyperinflation [indiscernible]. And the monetary gain sitting in the income statement was the total effect on hyperinflation. And if I just refer to the investor pack, we've got a detailed slide so that the shareholders can understand all the line items that is actually getting impacted by hyperinflation. But that is correct that the total impact or hyperinflation gain was the ZAR 91 million.

Thanks, Stephan. [indiscernible], there's Slide 53 that's in the investor pack which would be loaded on to our website, the information on the hyperinflation impact on Zimbabwe. Thanks very much. Are there any other questions that anyone is aware of or can see on the meeting?

Seelan, there are no further questions. [Operator Instructions] Can we just give it about 30 seconds just to see if any questions come through?

Thank you, [ Garrett ]. [ Garrett ], I don't see any further questions on the chat line. To all of our shareholders, if you're having difficulty sending questions, you know how to get hold of us, so feel free to send those through directly to Stephan or myself. And we can take it from there. I see a question coming through now around could you give us a sense of normalized margins. We have given an indication of where we'd like margins to get to. Stephan, would you like to answer that as well?

Yes, sure. Thank you, Seelan. I can pick that up. Yes, on a normalized basis, obviously, there's a big focus throughout all our management team to increase margins. So if I can maybe just break it down a bit, so from a BME perspective, from the short term, we will be between 8% to 10% range. In the longer term, we need to get into the double digits above 10% from a BME perspective. If I look at it from agriculture perspective, we said in the short term, we need to be between 6% to 8% range. Longer term, we need to be up to the 8% to 10% range from an agriculture point of view. And on the blended margin, from a chemicals point of view, we said in the short term, we need to be between the 4% to 6% range; longer term, closer to the 6% to 8% range. Overall, from a blended Omnia margin point of view, I think our target range is to get closer to the 8% -- in the short term, get closer with to the 6% to 8% range. And then in the longer term, [indiscernible] 8% to 10% range from an operating margin point of view.

Thanks. Thanks, Stephan. There's another question I see. Given the cyclicality of the business, how much cash buffer would you like to build? I think the way we think about the working capital and the cyclicality, the slide we've been through around working capital demonstrates that we're rebasing the working capital. So I think there were a few years ago where Omnia saw a working capital cycle as deep as ZAR 1.5 billion, ZAR 1.8 billion. And what the team has been able to do is to change that cycle with different supply chain initiatives and production initiatives. And we can see that, that cycle is not as deep. This is the second reporting period where you can see that, that cycle is not as deep as ZAR 1.5 billion, ZAR 1.8 billion. So I think we'd be comfortable to fund some of that working capital with working capital facilities. And you see that working capital needs to robustly convert into cash at year-end. And I guess the key for me is to reduce our core debt that the balance sheet holds, not necessarily have no debt for the working capital part of our business. The working capital, though, going forward, will be normalized to a different level to what you've seen in, call it, 4, 5 years ago where it was quite a steep working capital investment that was needed. I think that's all we can see, so let me take this opportunity to thank all of you who've dialed in to the call and wishing you a good December and January for those who we don't speak to. And we look forward to a good planting season, lots of rain. And hopefully, we'll chat again at our year-end results. Thank you very much.