Grindrod reports some interest in locomotive unit despite weak market

9th September 2016

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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A depressed commodities market continued to take its toll on shipping and logistics group Grindrod in the six months ended June 30.

Grindrod reported a drop in revenue to R11-billion in its management income statement – which included the company’s share in joint ventures – compared with R14.4-billion in the comparable period last year. The loss attributable to ordinary shareholders was R1.1-billion, compared with a profit of R303-million.

Grindrod CEO Alan Olivier describes the six months under review as “extremely difficult”.

He says the R1.1-billion loss was also driven by a R675-million impairment in the group’s rail business.

He notes that Grindrod will exit the locomotive assembly sector and that there is currently no demand in this “very cyclical market”.

“We are negotiating contracts, but the customers on the other side are not committing. Strategically there is no reason for us to be in the assembly business.

“We had interest from a number of parties to buy the business.”

Grindrod’s locomotive business largely targets customers in the mining, industrial and transport sectors in Africa.

Olivier says Grindrod will continue with its rail operations and leasing business.

At its ports and terminals division – located within the Freight Services business – Grindrod saw poor volumes in the first half of the year. However, the group’s Matola coal and magnetite terminal and Richards Bay coal terminal are now fully contracted, albeit at lower margins.

The big challenge is to ensure efficient train services from Transnet to serve these customers, says Olivier.

Maputo car terminal volumes dropped from 17 063 units in the first half of 2015 to 8 879 units.

Yearly capacity at the car terminal is 120 000 vehicles.

Grindrod has initiated a number of test-runs with BMW South Africa (SA) to increase volumes through the terminal, says Olivier.

BMW SA has a production plant in Pretoria, producing the 3 Series for the local and export markets. Production will soon switch to the X3.

Olivier adds that Grindrod will attempt to reduce its dependence on mineral commodities within its Freight Services business by looking to liquids and grain in order to have a more diversified revenue flow.

Within the shipping business, Grindrod saw tanker rates ease towards June.

Rates in the dry-bulk sector recovered somewhat in the six-month period, but remained below profitable levels.

Olivier says this market has been assisted by commodity prices inching upwards.

He says it appears that China has stopped consuming its own low-grade commodities, such as coal, in the first half of the year, in favour of importing higher-grade, more environment-friendly commodities.

Olivier does not expect Grindrod’s dry-bulk fleet to return to profitability in 2016 or 2017.

Looking at the group’s capital projects, Olivier says the regulatory hold-up, relating to tariffs, at the Coega liquid-bulk terminal development has finally been resolved.

The build-own-operate-transfer agreement is ready for signing.

“We are about ready to go.”

Dredging at the Maputo port is around 40% complete. The Matola terminal berth deepening project started in July.

These two projects will allow bigger ships to enter the Maputo harbour.

Grindrod has also acquired the majority stake in an intermodal facility in Nacala, in northern Mozambique, with the aim of developing an integrated logistics project.

This project is under way, says Olivier.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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