Executive chairman’s report to stakeholders

The Grindrod vision is to create sustainable returns and long-term value for its stakeholders. During the past few years, a prolonged period of low commodity demand and excess capacity has impacted the achievement of Freight Services and Shipping targets. This required significant restructuring and the closure or sale of a number of Freight Services rail and logistics operations and the impairment of the carrying values of ships.

In the second half of 2016, markets started to turn. Dry-bulk shipping rates and terminal utilisation improved, translating into improved earnings from continuing businesses in 2017.

The change in the cycle also provided the stimulus for implementing the board-approved strategy to unlock shareholder value. In August 2017, the board decided to investigate a spin-off of the Shipping Division as a separately listed entity. The business had remained sustainable during a prolonged period of adverse conditions which saw the failure of several of its peers. The intention is to list on an international stock exchange where the inherent strength of one of the world’s most respected ship operators would be properly valued. This process is well progressed and engagement with shareholders is planned as soon as the required information is approved.

Freight Services, having undergone extensive consolidation to reposition its business during the past two years, continues to pursue organic and inorganic logistics and infrastructure growth opportunities to optimise shareholder value.

Financial Services remains focussed on positioning itself to expand its service offering and optimise value within its areas of business. In this regard, substantial value was unlocked in 2017 when two asset-management businesses were successfully merged, with suitably qualified partners, and now operate as significantly larger separately managed entities.

The contributions of the board and executive management are integral to the implementation of Grindrod’s strategies, which is why the board decided on an interim arrangement when the CEO retired during 2017. I thank the board for its trust in electing me to oversee the period of transition as executive chairman. Nkululeko Sowazi was appointed a lead independent director to maintain the balance between executive and independent directors and I thank him for his support.

Alan Olivier retired after serving as CEO for eleven years and contributing to Grindrod’s growth and success over three decades. We thank him for his dedication to the company.

Financial performance

The improvement in commodity market fundamentals into 2017 and the continued focus on cost reduction and streamlining of operations yielded an improved financial performance in 2017 compared to 2016.

This impacted favourably on the performance of the continuing businesses in Freight Services. Financial Services continued to grow revenue and profit despite negativity in markets due to political turmoil, credit-rating downgrades and pressure on corporate earnings. The continuing businesses posted a headline profit of R598.2 million, a marked improvement on the comparable figure of R290.3 million in 2016.

The discontinued businesses comprise the Shipping division and the locomotive and rail assembly businesses.

The Shipping division benefited from the rising dry-bulk rates and narrowed its headline loss for the year to R202.6 million from R569.6 million in 2016. As the Shipping business is held for sale ahead of the proposed offshore listing, an impairment of R619.7 million was required to bring the carrying value of the ships to current market value. The impairments were made in line with international financial reporting standards required for held-for-sale assets. On listing in 2018, shareholders will benefit from the release of the significant foreign-currency translation gain.

The locomotive and rail-assembly businesses were sold piecemeal during 2017 with remaining activities closed by year end. The rail-leasing businesses are subject to due diligence and are carried at their expected realisable values.

The profits from Financial Services and the continuing businesses of Freight Services were outweighed by the impairments and closures in discontinued businesses and resulted in an attributable loss for Grindrod of R582.7 million (2016: R1 907.7 million).

Notwithstanding the adverse impact of impairments in current and prior years, the group balance sheet remains strong.

Business performance

Freight Services reported improvements in continuing businesses.

Maputo Port volumes increased by 22.0 percent, buoyed by the improvements in commodity exports and infrastructure, the main driver being the completion of the 75-km dredging project which opened the port to fully laden panamax vessels. Work to further improve berth accessibility and vessel turnaround continues.

Terminals utilisation increased by 22.4 percent to 10.2 (2016: 8.3) million tonnes on the back of improved coal volumes and improved rail resource availability compared to 2016. TCM, the first Maputo Port tenant to take advantage of the dredge, rehabilitated its berth to accommodate fully laden panamax vessels, and reached a run-rate of 71 percent of capacity by year-end. For 2018 over 80 percent terminals capacity has been contracted.

The Oiltanking Grindrod Calulo joint-venture board agreed to initiate the Ngqura Liquid Bulk Terminal project, a concession from ports operator TNPA, following the signing of the BOOT agreement in April 2017. Engagement with all stakeholders has commenced with the final close expected to be concluded during the third quarter of 2018.

Integrated Logistics returned to profit following consolidation and restructuring initiatives implemented in 2016 and 2017.

Preparation to execute a long-term pit-to-port logistics contract for Syrah Resources in Mozambique has commenced. The contract will assist in bringing critical mass to Grindrod’s position in the region of Nacala, a growing port hub 500 km from Balama where the Syrah graphite mine is being established.

The carrier transportation businesses remained under pressure due to weak demand in the new-vehicle sector and the impact of the Durban-Heidelberg petroleum pipeline ramping up to full capacity during the year.

Strong competition in the ships agency and clearing and forwarding markets resulted in subdued performances. Röhlig-Grindrod benefitted from moving its four Johannesburg facilities into its new and modern 20 000m2 warehouse in Meadows Business Estate, Linbro Park Johannesburg.

The OACL coastal shipping service reported solid results, while marine fuels supplier Cockett Marine Oil returned to profit as the bunker fuels market recovered.

Improvements in agricultural yields saw the agricultural businesses return to profit following the adverse effect of the drought experienced in 2016.

In 2018, Freight Services will continue to focus on achieving business and sustainability targets, using its proven skills and substantial long-term investments in logistics infrastructure to further unlock value.

Shipping reported a reduced headline loss following progressive improvement in shipping markets throughout 2017.

The headline loss shrunk to R202.6 million (2016: R569.6 million), driven by the division turning cash-generative during 2017. Impairments to fleet and goodwill resulted in a net loss attributable to shareholders of R908.2 million (2016: R802.9 million).

Shipping continued to outperform major rates indices through application of its intellectual capital. This, and its fleet renewal strategy to invest in modern vessels built by reputable shipbuilders, position the business to remain in the global lower cost quartile. It is expected that the listing on an international stock exchange with appropriate peers will optimise the value of this well-managed shipping business serving blue-chip clients.

Its reputation was confirmed by Grindrod receiving two awards at the 2017 MPA Seminar for Shipowners – the Green Ship Award for bulk carrier IVS Swinley Forest and the award for Excellence in Manpower Training and Development, in recognition of Shipping’s contribution to the development of maritime manpower in Singapore through its nurturing, grooming and training commitments.

Financial Services reported solid results and businesses performed above expectation.

Investment banking activities, transacted through GFS Holdings Proprietary Limited (GFS), recorded solid growth in the UK property portfolio in which it owns a share. Bridge Fund Managers and CoreShares, the two entities through which GFS conducts its asset management businesses, continued to grow.

In Grindrod Bank, Retail focused on ensuring continuity in the on-time distribution of social-grant payments to ten million card holders following the extension of the contract with Cash Paymasters Services by the Constitutional Court to give SASSA the opportunity to negotiate a new dispensation.

Financial Services is investigating ways in which further value can be created by introducing BEE shareholding to propel Grindrod Financial Services to the next level of growth.


I am personally very saddened to report that, after a fatality-free year in our Freight Services operations in 2016, 2017 saw reportable fatalities involving two Grindrod employees. On behalf of the board and Grindrod, I extend our deepest condolences to families, friends and colleagues. The fatalities were reported to the relevant authorities and duly investigated.

The safety of employees remains a priority and the board is committed to continue driving education, awareness and accountability through its top-down governance structures. Financial Services and Shipping again achieved exemplary safety statistics. Following the two fatalities, Freight Services reviewed its safety drive and renewed its focus on awareness, understanding and training to adequately protect stakeholders against harm, as measured against lost-time-injury-frequency rate (LTIFR), the benchmark indicator of safe practices.

Business sustainability

Applicable guidelines for responsible risk management, quality assurance, legal compliance and ethical behaviour are entrenched in the Grindrod governance structure to guide decisions and actions in achieving sustainable business outcomes in line with the business strategy. The governance framework is continuously reviewed to ensure alignment with relevant national and international frameworks.

In 2017, the risk-management framework was refined to improve alignment with the principles and practices of King IV. The framework now includes a matrix which assigns the responsibility for monitoring and reviewing key business risks to relevant sub-committees of the board. The framework incorporates the principles of the UN’s Global Compact and the Sustainable Development Goals adopted by Grindrod. It also includes the six capitals of value creation, outlined in the International Integrated Reporting Council’s integrated reporting framework, as criteria in the assessment of business risks and opportunities. Grindrod internalised the six capitals as our money, our assets, our skills, our people, our relationships and our environment.

The board continues to govern risk within a dynamically changing environment. The current top three risks – commodity exposure, global shipping markets and SHERQ – reflect the board’s focus on the successful outcome of the strategy, the detrimental effect of harm to stakeholders and the potential erosion of value due to commodity and global shipping market volatility.

Quality control in safety, health and environment are managed against international benchmarks. Freight Services embedded International Standards Organisation (ISO) criteria in its management systems, namely ISO 9001, ISO 14001 and Occupational Health and Safety Advisory Services 18001 (OHSAS 18001). Shipping conforms to stringent International Maritime Organisation (IMO) conventions and laws and all ships under Shipping management are ISO 9001 and ISO 14001 certificated.

Environmental preservation measures are outlined and quantified in the Grindrod Vision 2020 manifesto.

The Grindrod board and management have made progress in achieving transformation in line with its objective to reflect demographics, although the achievement of appropriate female representation remains challenging. The board continues to monitor and review engagement with the relevant authorities on matters related to employment equity and transformation.

Stakeholder engagement, a crucial element in achieving sustainable and transparent relationships, remains a focus area driven from board level.

Grindrod social investments focus on education and marine and coastal conservation, through Adopt-a-School and the Blue Fund, in partnership with the Wildlands Conservation Trust, two well-established organisations that consistently achieve sustainable results.


Grindrod looks forward to 2018. Global markets continue to show signs of improvement and its businesses are set to benefit in coming years from the foundation that has been laid to optimise value creation. In South Africa, the outlook for social and economic stability has also improved following the elective conference of the ruling party in December 2017 and the subsequent inauguration of a new president of the country.

It is heartening that evidence of widespread corruption is being investigated, quantified and acted on. South Africa can only benefit from increased transparency and accountability in private and public spheres – which is essential if we wish to successfully address the persistent challenges in our society resulting from educational and economic inequalities.

It was a pleasure working with dedicated management and operational teams in a challenging year. Each and every person rose to the occasion and threw their weight behind the drive to sustainability. It is regrettable that this process impacted loyal and dedicated employees in discontinued operations.

The strategy to unlock value should be largely completed in the second half of 2018, at which time the board will confirm the executive team tasked with executing on the strategy of the refocused group.

2017: Laying the foundation to optimally create shared value

Mike Hankinson

Executive chairman

23 March 2018