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Grindrod focuses on recovering volumes, earnings after lockdown impacts

27th August 2020

By: Marleny Arnoldi

Deputy Editor Online

     

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JSE-listed logistics group Grindrod has managed to generate 10% higher profit year-on-year in the six months ended June 30 at R464-million, as well as 40% more cash from operations at R507-million, but one-off Covid-19 adjustments dragged down its overall financial performance.

The company’s basic loss a share narrowed to 44.4c in the reporting six months, compared with a basic loss a share of 75.3c reported for the six months ended June 30, 2019.

However, Grindrod’s headline loss a share increased by 92% to 34.2c in the six months under review, compared with a headline loss a share of 17.8c in the prior interim period.

The company reported headline earnings from continuing operations of R23.4-million, compared with headline earnings from continuing operations of R165-million in the prior comparable six months − an 86% year-on-year decrease.

Earnings before interest, taxes, depreciation and amortisation also decreased from R91-million in the six months ended June 30, 2019, to R60-million in the six months under review. 

Grindrod reported a net loss of R336-million in the six months under review.

The company decided not to declare an interim dividend as a prudent and precautionary measure to manage the impact of Covid-19.

Grindrod did, however, declare a gross interim dividend of 381c per cumulative, non-redeemable, non-participating and non-convertible preferential share. The company has 7.4-million of these preferential shares in issue and will pay this dividend from income reserves.

“While the core business remained buoyant, Covid-19 actions resulted in one-off adjustments. These included a dividend withholdings tax of R31.6-million on repatriation of undistributed profits of $27.9-million from Mozambique and a R90-million mark to market adjustment on the Grindrod Shipping shares held.

“The discontinued businesses comprise the Marine Fuel, Agricultural Logistics businesses and the private equity portfolio. Covid-19 impacted valuations of the private equity portfolio, resulting in impairments and fair value adjustments of R270-million,” Grindrod CFO Xolani Mbambo explains.

OPERATIONAL PEFORMANCE

Grindrod says its Port and Terminals division reported good volumes through the Maputo port and Matola Terminal.

Matola Terminal volumes increased by 13% year-on-year to 2.6-million tonnes. This terminal benefited from a resilient iron-ore price and demand from China in the first quarter of the year.

Volumes of 2.6-million were up 13% on the interim period of last year. This amounts to 72% capacity use on an annualised basis.

Meanwhile, infrastructure development (berth and slab rehabilitation) in the Maputo port was delayed by the pandemic, but is expected to be completed in the second half of the year.

The Maputo port maintained its earnings level as it benefited from a weaker dollar against the rand, offsetting the impact of a 5% drop in volume from 9.3-million tonnes in 2019 to 8.8-million tonnes.

An improvement in the volume outlook in the second half of this year is dependent on a solution to the congestion at the Komatipoort border post between South Africa and Mozambique, which is impacting on the mineral cargo flows into the port from South Africa.

Meanwhile, Grindrod’s terminal facilities in Richards Bay continued cargo flows during the lockdown period and started sulphur rail shipments to Zambia.  The rail line bodes well for the strategic unlocking of the North/South corridor into and out of Richards Bay, which will attract additional cargo flows to the Port of Richards Bay, the company notes.

The company says investment in the Richards Bay facilities during 2019 and 2020, was strategic for unlocking the bi-directional traffic flow of sulphur, copper concentrate and fertiliser as primary commodities.

Moreover, the Seafreight business and its landside container operation achieved earnings growth of 30% year-on-year, underpinned by increased port activities through the multipurpose terminal in Maydon Wharf.

Container volumes delivered peak performance during the first quarter, with essential cargo shipments continuing during lockdown. The container business has acquired additional space in Port Elizabeth and a long-term tenure at its Maydon Wharf facilities.

Grindrod will continue to expand its footprint on the back of customer commitments.

To provide services to what is expected to become the world’s biggest liquid natural gas region, Grindrod has increased its presence in northern Mozambique. Despite many obstacles, such as insurgency attacks, poor road infrastructure and Covid-19-related lockdowns, Grindrod has established a dedicated delivery seafreight service to Cabo Afungi ex the main hub ports of Mocimboa da Praia, Pemba and Nacala.

To support the logistics involved, Grindrod established operations in Pemba and Cabo Afungi, where trucks and the four chartered vessels are loaded and offloaded for deliveries to and from the Cabo Delgado province.

Further to this, Grindrod acquired the rights to a strategically located plot of land near Palma and will develop a facility to support containerised and break-bulk cargo transportation.

The company’s Rail Logistics division improved its performance in the first half of the year and volumes post the South African lockdown period showed an improvement as rail operators strived to reignite traffic on the North/South corridor across Africa. Two locomotives and 54 wagons have now been deployed on the Dar es Salaam corridor.

“Volumes since the easing of the South African lockdown showed an improvement as rail operators strived to reignite traffic on the North/South corridor.

“The rail leasing business was impacted by force majeure calls on South African and Mozambican contracts during the second quarter, resulting from the temporary restrictions on mine operations and the transportation of non-essential cargo. A number of contracts have since restarted,” Grindrod CEO Andrew Waller explains.  

The Road Transportation businesses were negatively impacted by reduced economic growth in South Africa, but improved market conditions are expected.

Grindrod Bank continues to operate cautiously during this time, ensuring that its liquidity cover and capital adequacy ratios remain above minimum regulatory requirements.

The bank recorded a marginal increase in advances of 2.7% to R7.6-billion in the six months under review, compared with advances of R7.4-billion as at December 31.

The bank recorded a 5.3% drop in core funding base to R9.9-billion, compared with a core funding base of R10.4-billion as at December. Cash liquidity as at June was R4.3-billion, with a maintained credit rating of A-.

Grindrod Bank CEO David Polkinghorne says the bank experienced limited impairments owing to the quality and nature of the property book, a focus on secured lending and no retail exposure.

Waller notes that during the second half of this year, Grindrod will continue with precautionary measures across all businesses in response to the pandemic, while also ramping up the development of assets, focusing on efficiencies across supply chains and diversifying across commodities.

The company’s strategic focus remains on unlocking key corridors by investing in infrastructure and working with customers to find the most efficient and cost-effective logistics solutions.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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