Low shipping rates knock Grindrod

GRINDROD reported an 11% drop in revenue for the year ended December as depressed commodity markets prices delayed recovery in dry bulk shipping markets and industrial action in SA hurt its businesses.
This has led to speculation that the company may separately list its shipping business, most likely in Singapore, which is a benchmark for the global maritime industry.
Including joint ventures, revenue increased 2% to R32.7bn.
CEO Alan Olivier said on Wednesday that the group had seen some of the lowest shipping rates “in a long time”. But on the upside, the group was R500m net cash-positive.
Headline earnings per share were down 9%. But the group said on Wednesday it continued to make progress in optimising operational assets for long-term gains as markets remained slow, including its key Mozambique terminal operations.
It had also raised R4bn in the period, of which R2.4bn was from the issue of 96-million new shares and R1.6bn pertained to a black economic empowerment (BEE) transaction at the Grindrod holding company level. The group had earlier bought out its BEE shareholders at subsidiary level.
The issue of new shares had resulted in the weighted average number of issued shares increasing by 15%, which had caused the 9% fall in headline earnings per share.
The group said its Maputo businesses continued to do well, despite adverse market conditions. But the performance of the shipping division was affected by continued weakness in global shipping markets.
Financial services continued to grow and improve performance. Bidvest had late last year made an unsolicited bid for Grindrod’s bank and asset management assets, but was not successful.
Grindrod said financial services were accounted for as a continued operation and had received further capital after the withdrawal of Bidvest.
Ron Klipin, portfolio manager at Cratos Capital, said the most important factor in Grindrod’s results was the possibility of it splitting off its shipping division. “They are open for a separate listing in shipping provided they have a substantial stake,” he said. This did not necessarily mean a majority stake, he said.
Mr Klipin said Singapore would likely be the best place to conduct a listing, as it was a global shipping centre.
“Listing in Singapore would unlock a lot of value. It might be a good time to slim the entity down and keep a large stake in shipping.”
He said a focus on infrastructure and logistics was where the opportunities lay. “Shipping is very cyclical,” he said.
He also said it was possible that some party other than Bidvest would in future be interested in the group’s banking licence and its role in dispensing social grants. The group also had significant property investments among other financial assets.
Meanwhile, Grindrod had wound its trading operations in coal, agricultural and mineral logistics and marine fuels into the freight services and shipping divisions.
Grindrod said the diversification of commodities contributed to the good volumes reported in the dry bulk terminals.
But shipping rates in the dry bulk sector were well below profitable levels, and rates in the tanker sector were at unprofitable levels for most of the year, returning to profitable levels in the last quarter.
In road transportation, it had seen a “significant turnaround” in the auto-carrier business, and was busy restructuring its road-tanker business.
The proposed development of a liquid bulk terminal in the Coega industrial development zone near Port Elizabeth, with BEE and international partners, was being held up by the National Energy Regulator of SA, Mr Olivier said. The authority has yet to decide on what tariffs would apply.
A crude oil storage facility in the newly proclaimed Saldanha industrial development zone near Cape Town was also in the pipeline, but was being held up for the same reasons.