Grindrod expects drop in earnings

Grindrod expects to report a loss of between R1.35bn and R1.5bn for the year to December, a plunge in earnings of between 235% and 250%.

Johannesburg - Grindrod expects to report a loss of between R1.35 billion and R1.5bn for the year to December, a plunge in earnings of between 235 percent and 250 percent from the R1bn profit reported for the previous year.

The listed integrated logistics service supplier said yesterday that the plunge followed the company raising a $100 million (about R15.7m) impairment because of a continuation of the persistent decline in the dry bulk shipping rates.

Shares in Grindrod lost 9.75 percent yesterday to close at 944c on the JSE.

The group said dry bulk shopping rates had declined to “unprecedented levels”, significantly impacting ship carrying values and resulting in Grindrod’s board deeming it appropriate to raise the impairment.

Impairments

Grindrod said impairments were also necessary in the mineral logistics and rail businesses but these were not quantified.

The group said strong performances in the tanker and ship operating businesses mitigated the impact of the weak trading in the dry bulk shipping business and the carrier logistics turnaround helped freight services, which was impacted by weak dry cargo volumes.

Financial services again performed well and showed robust growth across all its business units, it said.

The group expects its headline earnings a share for the year to December to decline by between 20 percent and 25 percent to between R545m and R580m from R729.4m in the previous financial year.

Grindrod said its net asset value a share rose to about R24 from R22.27 because of the currency conversion of its US dollar assets, the company generated strong cash flows in the year and remained ungeared.

The group expects headline earnings a share for the year to December to drop by between 30 percent and 35 percent to be between 70c and 75c compared to 107.5c in the previous year.

A loss a share of between 185c and 195c is anticipated, which is a decrease of between 225 percent and 232 percent from the earnings a share of 147.6c in the previous year.

Adrian Zetler, an analyst at Coronation, said Grindrod’s trading update was not pretty but not really unexpected because everyone knew dry bulk rates were under pressure and hit a record low at the end of last year and continued declining into this year.

Zetler said Grindrod had finally taken an impairment on some of their ships to reflect the very uncertain outlook in the shipping market, which was also not unexpected.

Commodities

Another analyst, who did not want to be named, said Grindrod had been knocked by shipping, which was not unexpected, but the company’s net asset value was “quite encouraging”.

Zetler added that Grindrod’s freight services and commodity logistics business was under pressure because of the low level of commodities going through some of the ports and terminals, especially coal through Maputo.

Zetler said the sharp depreciation of the rand meant it was difficult for Maputo port to compete against South African ports, especially when the mines were looking for the best deal possible, because its tariffs were US dollar-based compared with the rand-based tariffs of South African ports.

But Zetler said Grindrod was still ungeared and it was “not a complete wheels off” because it had gone into the downturn with a strong balance sheet and would be able to weather the storm better than others.

“The external environment has been horrible and there’s very little management could have done about it,” he said.

It is expected to publish its annual results on Thursday.

BUSINESS REPORT