Grindrod reports solid first half results

The first half of 2013 recorded solid performances across Grindrod. The management and staff continually adapt to the dynamic business environment, delivering sustainable profit and long-term growth for Grindrod shareholders.
Within the Freight Services division, Ports, Terminals and Rail reported exceptional growth in profits and expanded operational capacity. Logistics businesses were well ahead of the prior year and continue to reposition the Automotive and Petrochemical transport businesses.
In Trading, Marine Fuels reported increased volumes and profit. The Industrial commodities business remained profitable despite the reduced commodity volumes. Agricultural commodity volumes were deliberately restrained to counter the effect of the inverted market.
Shipping reported a profit with improved earnings from tankers and the Unical tanker operating business.
The drybulk market remains poor.
Financial Services continued its good earnings growth.
Revenues are not comparable due to the sale of 50% of Cockett in June 2012.
The group’s attributable earnings were R533,2 million (H1 2012: R608,4 million). This represents a 12% decrease in earnings which includes the non-trading profit of R75,8 million on the Grindrod Tank Terminals business and in the prior year a profit of R414,9 million on the sale of 35% of the Maputo coal terminal.
Headline earnings of R450,5 million were up by 29% (H1 2012: R347,7 million). Headline earnings per share increased by 29% to 76,2 cents (H1 2012: 58,9 cents per share). Prior year headline earnings were restated to exclude the compensation for impairment of Ocean Africa Container Lines (Pty) Ltd in compliance with the new Headline Earnings Circular 2/2013.
An interim ordinary dividend of 20,0 cents per share (H1 2012: 17,5 cents per share) has been declared.
Divisional operating reviews
Freight Services
The division contributed earnings of R375,7 million which included a profit on the sale of Grindrod Tank Terminals to Oiltanking Grindrod Calulo Holdings of R75,8 million. Current earnings from trading activities before the profit on sale was R299,9 million, which reflected a 75% growth on the prior period’s trading performance.
Ports, Terminals and Rail
Ports, Terminals and Rail achieved earnings from trading activities of R250,5 million before the profit on sale of Grindrod Tank Terminals (H1 2012: R138,8 million before the profit on sale of Maputo coal terminal), a growth of 81% on the prior period.
On 18 February 2013, a derailment on the Ressano Garcia railway line resulted in the collapse of the Tenga bridge and subsequent line closure which lasted for 60 days. The resulting 1,2 million tonnes lost tonnage was partially offset by insurance proceeds. The line was fully operational by 26 April 2013 with volume ramp-up progressing ahead of expectation.
The Maputo coal terminal Phase 3,5 expansion project was commissioned in July 2013. This project will increase the terminal’s throughput capacity by 1,3 to 7,3 million tonnes per annum.
Key work-streams on the Phase 4 development of the Maputo coal terminal, Coega tank terminal and Navitrade in Richards Bay are progressing as planned.
Strong performances were reported from the Maputo car and sized coal terminals.
The Rail business is starting to perform to expectation. As at 30 June the leasing business had 60 locomotives on lease to various mining houses. The rail engineering business manufactured and rebuilt a total of 23 locomotives for various customers in sub-Saharan Africa. Production capability is now 100 locomotives per annum.
The performance of the New Limpopo Bridge Projects rail concession in Zimbabwe and Zambia and the Gear rail control, communication and signalling businesses are in line with expectations. The offer to shareholders to acquire shares in RACEC Limited will further strengthen Grindrod’s position in the rail value chain.
Outlook
Performance at Ports, Terminals and Rail is expected to further improve during the second half of this year. The depressed coal market is expected to continue in the short to medium term, hampering coal exports.
Magnetite will increasingly underpin performance at Maputo terminals as the market fundamentals of iron ore and steel, continue to support exports. The outlook for the Rail business is positive due to a good manufacturing order book and increased opportunities as the business integration delivers a competitive offering in a sector which is showing exciting growth prospects.
Challenges in the Logistics business segment continue. There is, however, a positive outlook for the Automotive business in the second half of this year as a result of a focus to improve utilisation of the Maputo corridor and storage facilities. Performance at the Petrochemical business will be supported by the expected increase in demand for fuel supply in Botswana, finalisation of the expansion into Mozambique and the consolidation of operations in Namibia.
Trading
The Trading division generated earnings of R0,7 million. The Marine Fuels business produced volume growth in the first half of 2013 despite the tough trading period, characterised by compressed margins and slower demand from the market. The business continues to grow its global presence with a group of brokers joining Cockett in the United States during the period.
Weak global and domestic industrial commodity pricing led to margin pressure in all ferrous and ferro alloy products. The 2012 mining strikes and unrest led to a decline in chrome shipments in the first half of 2013.
Coal trading performed well, despite the lack of available coal to trade.
Earnings in the Agricultural business were disappointing. As a result of the volatile and inverted agricultural markets, the business embarked on a deliberate strategy to limit volumes traded in the first half of 2013. This resulted in losses for the period due to an inability to cover overheads. The business continues to transform from a pure trading company to a fully integrated agricultural business with investments made in businesses operating oilseed crushing plants, maize and wheat mills.
Outlook
The Marine Fuels business is expected to perform reasonably well as it grows its business in difficult market conditions.
A strategic alliance concluded in the Oreport business will provide the business with additional opportunities for growth.
The restructure and repositioning of the Agricultural business will continue.
Shipping
The Shipping division’s earnings of R106,2 million is a significant improvement on the R121,1 million loss in the first half of 2012.
While rates achieved in the tanker segment were higher than the corresponding period in the previous year, drybulk rates achieved were all lower.
The medium-range product tankers under Vitol commercial management produced above market earnings.
The Ship Operating businesses, in particular the South African coastal tanker operation, Unical, performed well on the back of steady volumes.
As in previous periods, average daily earnings achieved were above average spot rates due to forward contract cover, operational efficiencies and good pool performances.
Profits were assisted through the settlement negotiated on cancelled long-term chartered chemical tankers, while the default on a panamax bulk carrier negatively impacted earnings.
During the period, a 32 750 dwt handysize bulk carrier and in a joint venture, a 51 800 dwt eco fuel efficient Korean product tanker were delivered. In addition, two long-term charter eco fuel efficient 52 000 dwt product tankers were delivered.
Orders were placed for the acquisition of three eco fuel efficient handysize bulk carriers and the long-term charters of four eco fuel efficient supramax bulk carriers, all for delivery in 2014 and 2015.
The shipping fleet decreased from 36,5 at December 2012 to 35 in June 2013.
Outlook
Commodity demand remains strong and world seaborne trade continues to grow.
Demand is recovering in the products market which, when allied to minimal deliveries of newbuilding vessels, is resulting in sharply improved tanker rates.
The outlook for the dry cargo market remains weak due to the number, albeit reduced from 2012 levels, of new ships delivering into an already oversupplied market. On the positive side, scrapping of older drybulk tonnage continues at high levels and the newbuilding order book going forward is limited. This is leading to a rebalancing of the supply/demand equation, in particular on the smaller size ships.
The owned and long-term chartered fleet has a reasonable level of cover for the remainder of 2013, combined with solid ship operating forecast earnings. Forward contracts on 36% (weighted by revenue) of vessels in the second half of 2013 will lock in US$1,6 million of operating profit, with 22% (weighted by revenue) of vessels already under contract for 2014, resulting in contracted operating profits of US$8,5 million.
Source: Grindrod