South Africa: Strong Shipping Market Lifts Grindrod Earnings
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Business Day (Johannesburg)
21 August 2008
Posted to the web 21 August 2008
Artwell Dlamini
Johannesburg
SHIPPING and logistics group Grindrod has posted results for the six months to June that were in line with its expectations, but high ship prices might limit room for expanding its fleet.
CEO Alan Olivier said yesterday the results were achieved against the backdrop of a buoyant shipping market and substantial demand for commodities.
Shipping contributed 90% to the group's total attributable earnings.
The group, which boosted revenue to R13,53bn from R7bn, generated attributable earnings of R1,10bn for the period, up 94% from the corresponding period last year.
Headline earnings per share increased 95% to 242,8c per share from 124,6c. Grindrod declared an interim ordinary dividend of 68c and a preference share dividend of 589c.
Olivier said the strong shipping markets had enabled the group to secure "substantial contracted profits at very favourable rates", while benefiting from high spot shipping rates.
In particular, he said the dry-bulk market remained firm even though it showed seasonal softening over the past few weeks.
"Following a strong first half of 2008 the dry-bulk market has taken the usual European summer downturn and has also been affected by the Olympic Games, as the Chinese have temporarily reduced imports.
"Market fundamentals remain positive," Olivier said.
The product tanker market had stayed firm, while the trading division did not perform as expected.
On new shipping orders, Olivier said the outlook was less certain due to the large tanker order book delivering next year.
"The prices of both new buildings and secondhand ships have continued to firm."
He said high ship prices - which have risen on escalating steel prices, wage increases, and rising machinery price inflation - restricted plans to expand the fleet.
But the company already had a substantial number of ships that were contracted at lower prices a while ago.
Olivier said that the large order book, particularly in the capesize sector, delivering in 2010, could have a dampening effect on the market.
"The negative effect should be limited as yard delays and possible cancellations, increased scrapping and increased demand for commodities should balance out the market," he said.
Olivier expected strong commodity demand to continue. "In the longer term, continuing strong commodity demand from developing countries will see dry-bulk seaborne trade grow."
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The strong balance sheet, conservative gearing and high cash generation enabled the group to seek investment opportunities.
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