2010 Unaudited Interim Results and Dividend Announcement • Attributable income down 10% to R435,5 million • Headline earnings per share of 95,4 cents • Return on ordinary shareholders’ funds exceeds 16% annualised • Interim ordinary dividend of 27 cents per share • Capacity for substantial growth
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2010 Unaudited Interim Results and Dividend Announcement• Attributableincomedown10%toR435,5million• Headlineearningspershareof95,4cents• Returnonordinaryshareholders’fundsexceeds
*Restated due to the requirement of IAS 7 Cash Flow Statements which states that capitalexpenditure relating todualpurposeassetsshouldbereallocated from investingactivities tooperatingactivities.
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oveRvieW
The group generated earnings of R435,5 million for the six months ended 30 June 2010(H12009:R483,8million), down10%on the correspondingperiodof theprior year.Headlineearnings per share decreased by 10% to 95,4 cents per share (H1 2009: 105,7 cents pershare).ThedeclineinearningsandheadlineearningspersharewasprimarilyduetoastrongerRand/USDollarexchangerateandnoshipsaleprofitscomparedtoaprofitofR152millioninthepriorperiod.However,strongerdrybulkmarketsandinterestearnedoncancelledshipnewbuildingcontractsinH12010,reducedtheirimpact.
Major items of capital expenditure for the period included instalments paid under the group’snewbuildingshiporders, thepurchaseofships, theexpansionofdrybulk terminalcapacity, theacquisitionofabunkershippingandtradingoperationandaninvestmentinapetrochemicalroadtransportcompany.
CaSH FloW and BoRRoWinGS Cashgenerated fromoperationswasR392,9million (H12009:R584,2million).Cashoutflowsincluded capital expenditure of R1 012 million and dividends of R166,3 million during theperiod.ThisresultedinthenetdebtpositionofR258millionat31December2009increasingtoR1183millionat30June2010andthenetdebt:equityratiorisingfrom4,4%to18,7%.ThegroupgeneratednetinterestincomeofR6millionfortheperiodcomparedtoanexpenseofR73millioninthepriorperiodmainlyduetolownetdebtlevelsduringmostoftheperiod,interestearnedoncancelledshipnewbuildingcontractsandtheutilisationofUSDollarcashtoreduceRanddebt.
maRKeT oveRvieW Thedrybulkshippingmarketexperiencedapositivefirsthalfoftheyearwiththesmallershipsizesinparticularbenefiting fromcontinuingstrongdemand fromChina fora rangeofcommodities.Boththehandysizeandhandymaxsectorsreached18monthhighsinMaybeforeacombinationof the World Cup and the early onset of a traditional northern hemisphere summer slowdowncausedratestodrop.Thesamecouldnotbesaidofthecapesizemarketwhich,strugglingundertheweightofasteadystreamofnewbuildings,washitbya tighteningofChinesegovernmentstimulusmeasures.Theresultantslowdownin ironoreimportscausedratestofalldramatically,whichendedthehalfyearatlevelsnotseensinceearly2009.Handysizeearningshaveremainedtheleastaffectedbytherecentdeclineinthedrybulkmarketwhich,whilst30%downfromtheirrecentpeak,lookwellunderpinnedbygrowingAsiandemandforminorbulks.Drybulkassetpricesfirmed in linewith thebuoyantmarketwhilemodestdeclines insecond-handvesselpricesarebeingseenasspotmarket ratescomeunderpressure.Newbuildingpricestodatecontinuetograduallyincrease.
Drybulkratesatthedateofpreparingthisreportare:
Averagespotrates
Spotrates(US$perday)
One-yeartimecharterrates(US$perday)
Three-yeartimecharter
rates(US$perday)
H1 2010 (US$ per day)
H12009(US$perday)
Handysize 15015 15250 14000 18 834 9092
Panamax 23013 23500 19500 30 155 13985
Capesize 29956 28750 26000 36 160 35031
Source:ClarksonsResearchServicesLimited
Thetankershippingmarketingeneral,whilstexperiencingsomevolatility,performedbetterthanthelastsixmonthsof2009,obtainingsupportfromincreasingoildemandaswesterneconomiesimproved. This trend has continued and tanker asset prices across all sectors have increased10–20%inbothnewbuildingsandsecond-handshipssincetheendoflastcalendaryear.Thetanker market still faces a relatively high level of ships on order, however, growing oil demandshouldabsorbmostofthesedeliveries.
Metallurgical product markets in the last six months improved, particularly in China. Capacityutilisationimprovedassteelandalloyproducersincreasedtheirproductiontocaterforcustomerrestocking.Buyersarenowoperatingmoreinthespotmarketandforsmallerquantities.
diviSional oPeRaTinG RevieWS SHiPPinGThe Shipping division was relatively active in the first half of 2010, taking delivery of a SouthAfricanbuilt4200dwtbunker tanker (owned),a32000dwthandysizebulkcarrier (owned),a40000dwtproductstanker(contractedtopurchaseinH12010),a47350dwtproductstanker(chartered) and exercised a purchase option on one of its long-term charters, a 32 400 dwthandysizebulkcarrier. Italsocontractedthepurchaseofafurther40000dwtproductscarrier,whichwillbedeliveredinSeptember2010.ThedivisionconcludedtheacquisitionofAssociatedBunkeroilContractors(ABC),aRotterdam-basedbunkertankerbusiness,whichhasafleetoffourbunkertankers.TheacquisitionofABCsawthegroupexpanditsexistingbunkertankerbusinesswiththisinvestmentinoneoftheworld‘smajorbunkeringports.
Thedivision’sdrybulkbusinessperformedwellduringthefirsthalfof2010.Thecapesizebusinessbenefitedfromthehigh levelofcontractcover,whichensuredthattheextrememarketvolatilitydid not have a negative effect. The panamax ships again generated good profits under theirfixedincomechartersandthedevelopmentofthehandymaxoperatingbusinesscontinues.Thehandysizeships,whicharemainlyemployedviaapool,generatedsubstantialprofitsduetolowvesselcosts.
Thetankerbusinesshadachallengingperiod,withchemicaltankersearningclosetobreakevenlevelsduetotheworldwidedownturninchemicalandindustrialproduction.Thesmallproductstanker earnings reduced due to higher repair and maintenance costs while the medium rangeproducttankersperformedwellasaresultofgoodcontractcover.
The division had significant contract cover during the period with average earnings per daymarginallybetterthanaveragespotratesfortheperiod.
Theshipoperatingactivitiesperformedwellduringthehalfyear.Increasingvolumeswereachievedin theparcelbusinesswhichcontinues tooperateefficientlyunder its formulaofmarket linkedrates.Thehandmaxbusinesswasnegativelyaffectedbythestrengtheningdrybulkmarketinthefirsthalfoftheyear.Thebunkertankerbusinessperformedwell,asdidtheSouthAfricanbasedtankeroperatingjointventurewithaSouthAfricanpartner,CaluloShipping.
TheShippingdivisioncurrentlyhasanownedandlong-termcharteredfleetof34shipswhichhaveamarketvalueofR1,4billioninexcessofbookvalue.ForH2:2010,83%(weightedbyrevenue)of the ships are contracted out and 40% (weighted by revenue) for 2011. The value of profitcontractedisUS$30millionforthesecondhalfof2010andUS$35millionfor2011.
OutlookThedrybulkmarket isexpected to recover fromthesummer lowscurrentlybeingexperienced,however,anydramaticupsidewillprobablybecappedbythesheervolumeofcapesizenewbuildingdeliveries.Assetpricesofdrybulkshipsarelikelytoremainclosetocurrentlevels.
The tanker market is expected to remain at current levels in the short-term, improving duringthenorthernhemispherewinter.Assetpricesare likelytostabiliseat thepresent levels forbothnewbuildingandsecond-handships.
TRadinGTrading increased its presence in Singapore in order to take advantage of new opportunities,productsandmarkets inAsiaboth inmetallurgicalandagriculturalproducts.PhysicalsupplyofbunkerfuelsisbeingfurtherdevelopedparticularlyinRotterdamandontheRiverThames.Thosedevelopments and others in both agricultural and metallurgical areas are a continuation of thedivision'sstrategytoembeditselfinthesupplychaintoprovidesustainablebusinessgoingforward.
Pricesinmostproductsweresomewhathigherandalthoughvolumeswereonlyslightlyup(6%),overallUSDollarrevenuewasupby23%duemainlytoachangeintheproductmixwithincreasedactivity in some higher valued products. US Dollar operating margins were slightly reduced bythechangeinproductmixandalthoughUSDollarprofitswereup2%,attributableprofitinRanddeclined16%becauseofthestrongeraverageRand/USDollarexchangerate.
OutlookTheoutlookfortradingforthebalanceof2010remainschallengingasmarketconditionscontinueto be volatile leading to continued customer uncertainty. However, the outlook ahead is verypositive across the division’s whole range of commodities with further significant increases indemandexpected.
FReiGHT SeRviCeSFreightServices reportedprofitsofR103,3million for theperiod, an increaseof 16%over theequivalentperiodin2009.Resultswerenegativelyimpactedbythirdpartyindustrialactionacrossmostbusinessesinthesegment.Inaddition,volumeswerealsoaffectedbylimitedavailabilityofrailwagonstomeetthedemandforexportcapacityatthedivision’sdrybulkterminals.However,agoodperformanceby Intermodal, togetherwithan improvedperformancefromLogisticsandrecognitionofearningsfromtheMaputoPort,contributedtoearningsgrowth.
Ports and TerminalsTheconcessionforthePortofMaputowasextendedforanadditional15years,withthe initialtermoftheconcessionnowrunninguntil2033,withtheoptionfora10yearextensionthereafter.Theextensionprovides a timeline for the implementationof theportmasterplan and for sub-concessionairestoundertakeadditionalinvestment.Theimmediateexpansionplansincludethedredging of the port from its current 9.4 metre draft to 11 metres to accommodate panamaxvessels, which will significantly increase competitiveness, particularly with respect to bulk andcontainertraffic.Theprojectisexpectedtobecompletedinearly2011.
TheextensionoftheMaputocoalterminalsub-concessionto2043wasconcluded,togetherwithanagreement toexpand theMaputocoal terminal from itscurrentplannedannual capacityof6milliontonnesperannum(onscheduleforcompletioninthelastquarterof2010)tobetween16 and 25 million tonnes. The project is currently in feasibility stage with completion plannedfor2013.
Volumes through the drybulk terminals were negatively impacted by third party strike actionandinsufficientrailwagonresources,however,additionalrailwagonsareduetobereleasedbyTransnetinthesecondhalfoftheyear.GrindrodisalsoactivelypursuinginitiativestoprovidethenecessaryrailwagonstoservicetheRichardsBayandMaputodrybulkterminalsandtheMaputocarterminal.
Thesaleofa30%stake in thecar terminal toHöeghAutoliners,oneof the largestautomotiveshippingcompaniesintheworld,wasconcludedinthefirsthalfoftheyear.
Comments continued
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LogisticsTheLogisticsoperationsreturnedtoprofitabilityfollowingasuccessfulrestructureandrationalisationofoperationstoalignwithlowermarketvolumes.Furtherimprovementsinprofitabilityareexpectedinthesecondhalfoftheyear,asmarketsimprovefurtherandadditionalrationalisationbenefitsarerealised.TheacquisitionofFuelogic,apetrochemicalroadtransportoperation,wasconcludedinthefirsthalfoftheyear,makingGrindrodoneofthelargestoperatorsinSouthAfricainthissector.Other The improvement in container volumes in the first half of the year has positively benefited theIntermodaloperations. Intermodalcontinues to invest in theconsolidationandexpansionof itsexistingoperations,withadevelopmentinDurbandueforcompletioninthethirdquarterofthisyearanddevelopmentsinJohannesburgandMaputoexpectedtocommenceinthesecondhalfoftheyear.TheSeafreightbusinessconductedbyOceanAfricaContainerLinesdidnotbenefitfromimprovedcontainervolumesduetoportcongestionwhichraisedoperatingcostsandfreightratesremainedunderpressure.Thiswasexacerbatedbythestrikeactivityduringtheperiod.Itisexpectedthatsomeimprovementwillbeachievedinthesecondhalf.ShipsAgenciesresultswereimpactedbylowcontainerfreightratesandthestrongRand/USDollarexchangerate.TheRailbusinessconductedbyRRLGrindrodperformedinlinewithexpectations.Anumberofconcessionopportunitiesarebeingexplored,whichwouldpositivelyimpactonperformanceoverthenextfewyears.OutlookFurthermarket improvement isexpected in thesecondhalfof theyear,basedonthe followinganticipatedtrends:• Portandterminaloperationshavebeenlargelyunaffectedbymarketchallenges,withdemand
FinanCial SeRviCeSTheBankhadagoodfirsthalf,withattributableearnings19%uponthecomparativeperiodin2009.Significantfeeswererealisedfromlendingactivitiesandnet interest incomehasheldup,withbothnetmarginandadvanceslevelsbeingmaintained.Liquidityremainsatahealthylevelandthelendingbookiswellmanagedfromacreditperspective.ExpansionintheAssetManagementdivisionhasresultedinrevenuegrowthonlastyear,whichisanticipatedtocontinuefromthebasethathasbeencreated.Thirdpartyassetsundermanagementcontinuedtoincreaseovertheperiod.TheperformanceofthefundsmanagedbytheBankwasparticularlyencouraging,withtheGrindrodGlobalPropertyIncome Fund rated the second best performing South African unit trust fund for the year to30June2010withatotalreturnof42.6%.GrindrodAssetManagementhasalsobeenappointedmanager of Nedgroup Investment’s South African listed property unit trust which was officiallylaunchedon30July2010.OutlookTheBankexpectsasolidsecondhalfwithgoodearningsgrowthforthe2010financialyear.
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BaSiS oF PRePaRaTionThe results have been prepared in terms of IAS 34 Interim Financial Reporting and are inaccordancewith thegroup’saccountingpolicieswhich fully complywith International FinancialReportingStandards(IFRS),theCompaniesActasamendedandtheJSEListingsRequirements.TheyareconsistentwiththoseappliedinthepreviousyearexceptfortheJune2009condensedcashflowstatementwhichhasbeenrestatedduetoareallocationinrelationtoIAS7CashFlowStatements.Thisreallocationhasresultedincertaindisclosurechanges,buthasnotresultedinanychangesinaccountingpolicy.
TheaccountingfortheacquisitionofFuelogic(Proprietary)LimitedandtheAssociatedBunkeroilContractorsgrouphasonlybeenprovisionally determinedas at 30 June2010.At thedateoffinalisationoftheseresults,thenecessarymarketvaluationsandothercalculationshadnotbeenfinalisedandtheyhavethereforeonlybeenprovisionallydeterminedbasedonthedirectors’bestestimatesofthelikelyvalues.
PReFeRenCe dividendNotice is hereby given that a dividend of 406 cents per cumulative, non-redeemable, non-participating andnon-convertible preference share (H12009: 522,5 cents) hasbeendeclared,payabletopreferenceshareholdersinaccordancewiththetimetablebelow.