Grindrod aims to recover margins and invest strategically

Freight logistics company Grindrod has laid out plans to tighten its belt and address margin declines caused by a “very challenging” operating environment while focusing its R2bn capital expenditure on its terminals and rail businesses, where it sees growth prospects.

Speaking at the group’s interim results presentation on Friday, CEO Xolani Mbambo said a combination of weather events, weak price performance of its portfolio of commodities handled through its port and terminals and increased group interest expenses had hampered the company’s performance in the period and put margins under pressure.

The JSE-listed group reported a marginal decline in performance for the half year to June, having grappled with challenging market conditions and lower commodity prices.

Core earnings before interest, taxes, depreciation and amortisation (ebitda), the measure of its underlying financial performance, fell 7% to R1bn in the period from a year ago. Headline earnings per share (HEPS) slipped to 72.1c from 73c at the halfway mark in 2023.

He said Grindrod would be cautious about capital allocation, focusing on recovering margins.

“We are seeing the margins tapering off; we have to be cost-conscious,” said Mbambo “No frills — that’s the name of the game if we want to sustain our margins.”

The Durban-based business said its key commodities — chrome and iron ore — had demonstrated some price resilience despite weak Chinese steelmaking demand and elevated iron ore port inventories. New energy commodities, lithium and graphite prices declined in the first half, reflecting weaker demand for electric vehicles while copper prices were affected by Chinese demand amid supply concerns.

Accelerating momentum

The company which also owns ports, terminals and tankers, stated freight volumes at its Maputo port were up 18% to 6.9-million tonnes, supported by a robust market for chrome.

Mbambo said the Maputo port had achieved its strategic goals by prioritising its technology-enabled visualisation projects. He was upbeat that it would persist in accelerating momentum for customers.

The JSE-listed group declared a profit of R485m from R444m previously. Cash generated from operations rose 13% to R425m.

The board chaired by Cheryl Carolus declared a gross interim ordinary dividend of 23c per share, down from 34.4c.

Volumes handled at Grindrod’s dry-bulk terminals increased 3% to 8.4-million tonnes, it said while Richards Bay volumes rose 20% from the previous period to 1.6-million tonnes. This growth mitigated a drop in Grindrod’s Maputo terminal volumes, it said.

In its logistics segment, Grindrod said a larger customer base and more port calls allowed its ship agency and clearing and forwarding businesses to achieve headline earnings growth of 38%.

This development was tempered by the detrimental effects of logistics limitations on the throughput and transport of container handling depots, which led to a 3% increase in earnings for the logistics business as a whole.

Grindrod reported one fatality at its operations in Durban in the period.

Its rail business has undergone structural reorganisation, and it emphasised that the rail strategy was now the main focus. Thirteen Grindrod locomotives were anticipated to arrive in SA in the third quarter, after the mutual termination of the rail operation contract in Sierra Leone.

Rail expansion

“We welcome the opportunity to deploy these locomotives,” Mbambo said. “I’m pleased that they arrived last night in Durban,” he said adding that the locomotives would be upgraded and modernised before being used.

With cash of more than R2bn, Mbambo said capital expenditure would be directed towards supporting the rail expansion and upgrading of the Maputo terminals.

He said that Grindrod would aim to allocate cash for high-yielding projects and M&A opportunities.

“Those have to be strictly quality projects and M&A that can give us cash from day one,” the CEO said. “So we are quite strict on capital allocation to ensure that when we make those acquisitions or implement project development, we get to the ebitda number within a short time and payback that is relatively short.

“Overall, we will be optimising our operations to make sure they are fit for purpose. Our infrastructure investment will focus on high-growth areas to be able to achieve shareholder returns and pay sustainable dividends.”

The firm said it would increase scale and efficiency in the important corridors in which it operated, which would speed up volume growth and enable integrated pit-to-port solutions by developing an efficient rail system.

Grindrod shares fell 4.12% to R15.12 on Friday, giving it a market capitalisation of R10.5bn

gumedemi@businesslive.co.za