Omnia's Stephan Serfontein on implementing a turnaround strategy while stepping into FD role.
In March, diversified chemicals group Omnia posted a remarkable turnaround after the company suffered losses in the previous financial year and had to ask shareholders for new capital to pull through a bad patch.
Omnia had to raise R2 billion in new capital to service its debt, now the company has reported a profit of R129 million for the year ended 31 March 2020, compared to the loss of R407 million in the previous year.
Omnia FD Stephan Serfontein recalls the company before its turnaround as having a massive debt problem that needed to be solved. He has been with the company for almost ten years, serving as interim FD since August 2019 before being appointed as permanent FD in March 2020. “When we started formulating the turnaround strategy, we knew that we had to identify what the cause of the problem was so that we could understand what we were dealing with.”
The newly appointed leadership team brought together and engaged with all the company’s various stakeholders to make sure that they had the buy-in that was necessary and that everyone had a stake in the turnaround strategy.
Stephan explains that the new leadership team had to bring motivation and discipline back into the business. “We needed to bring that passion for success into the business and needed to ensure that everyone in the company understood that the new management was fully committed to turning around the company.”
The turnaround strategy
For Stephan, a key part of the turnaround strategy was to ensure that everyone fully understood the numbers. “All the information you need to make the right decisions can be found in your numbers,” he says.
The first step to stabilising the business was to make sure it could sustain and maintain a positive free cash flow balance. Part of this process included negotiating the restructuring of the company’s debt obligations and taking personal control of its cash flow management. “We didn’t buy anything that wasn’t absolutely necessary,” he says.
The next step was looking at increasing the company’s profitability. This step focused on increasing profit margins across all Omnia’s business units by reducing variable costs and increasing productivity throughout its manufacturing facilities.
In the first half of the new financial year under the turnaround strategy, Omnia implemented a bridge facility and successfully concluded an oversubscribed rights issue of R2 billion. The rights issue proceeds were used to pay down the bridge facility and in December of 2019 the company negotiated a sustainable debt package.
Looking at the months leading up to Omnia’s financial year end, Stephan said that the company’s operating profits increased significantly. “It was quite a big jump from R24 million worth of operating profit the previous year to R789 million in 2020. These profits resulted in a positive earnings per share, whereas we had a loss per share in the previous year.”
The rights issue and the focus on prudent cash management resulted in Omnia’s net debt reducing significantly from R4.4 billion to R1.9 billion for the year.
Stephan acknowledged that with strong support from the Board and his CEO a robust turnaround of this nature would not be possible. It has been an honour to be granted the responsibility to put Omnia back on the winning path. He believes Omnia is now in good footing with a much stronger balance sheet, which has set the company up for growth.
Omnia has yet to embark on the second phase of the turnaround plan, which includes a bigger focus on the company’s income statement for the coming year to grow top lines, reduce costs and increase trading margins. “We also need to ensure we achieve sustainable returns for our shareholders.”
One of Stephan’s proudest moments during the entire turnaround strategy has been to restore pride for Omnia’s people. “There was a lot of negative press in the market surrounding the company in the last 18 months. But it was really rewarding to see people lifting their heads as they became proud to be part of the Omnia family following the good set of results.”
The vulnerable side of volatility
Unfortunately, the turnaround strategy has made Omnia a volatile environment because of the many changes at senior level, together with the changing macro’s introduced by the Covid-19 pandemic has made the business vulnerable to cyber-attacks.
Then, July 2020, tragedy struck as Covid-19 claimed its first life within the Omnia Group.
“Losing a member of the Omnia team is almost like losing a family member,” he says. “I had a phone call with the team member while he was in the hospital. He was actually doing better at the time, but his condition had deteriorated overnight, and we lost him the following day.”
The company has a strong team dedicated to making sure its people and stakeholders are safe by enforcing the strict rules imposed by the government, including sanitising, wearing masks and social distancing.
Stephan explains that in dealing with the cyber-attack and the Covid-19 environment while trying to finalise the results on a remote basis, he has learned to act decisively, but also to know when to take a step back, slow down and then make a call.
Stepping into the role of FD
Stephan started off working in the mining and chemical divisions of Omnia when he joined the company. From there he moved into the international agriculture division. “Building all those relationships across the different business sectors within the Omnia portfolio really assisted me in having a deep understanding of the culture within the company. It also helped me understand how the different business units fit together and the drivers behind those units.”
During his time in the international agriculture division, Stephan had been responsible to integrate new acquisitions into the Omnia family. “That really challenged me, as I had to merge a company with flare and entrepreneurial culture into the Omnia group, which is more than 60 years old with a deep heritage and strong people.”
He explains that this experience has helped him build bridges between the deep understanding of the business and new ways of thinking, and to bring them together into one strategy.
Stephan added that it has been a rewarding and learning experience to work with the Board and CEO who is fully supportive and relentless in their focus on putting Omnia back on the winning path.
On a personal note
Stephan grew up on a farm and enjoys the outdoors. He says that, even though he’s getting older, he still enjoys playing sports with his two boys, Tiaan and Zander, 13 and 11 years old. Lately, he has really come to enjoy playing golf with them.
He explains that his wife, Michelle, together with his sons form the backbone that helps him to be successful.
Together his family is involved in the community. They also help to provide meals for people who are currently unable to feed themselves due to the Covid-19 crisis and help families who are struggling financially. “I like to get involved and allocate resources in any shape, size or form. It’s always fantastic to see that smile on someone’s face after receiving a meal, or to know that a kid can actually go to school for another year.”