Operational review: Freight Services

Freight Services

Key achievements 2017

  • Returned continuing operations to profit.
  • Achieved growth in the restructured logistics business.
  • Completed a TCM berth-rehabilitation and quay-offset project to accommodate post panamax vessels.
  • Achieved strong growth in Terminals volumes.
  • Awarded a ten-year pit-to-port logistics contract through the Port of Nacala in northern Mozambique.
  • Consolidated four Röhlig-Grindrod Johannesburg facilities into a large, modern warehouse.
  • Maintained Level 2 B-BBEE score within its major operating entity, Grindrod (South Africa).

Key challenges 2017

  • Two fatalities.
  • Managing the exit from rail assembly businesses, which affected some 500 employees.
  • Managing uncertainty amongst staff during restructuring and following the decision to spin off the Shipping division.

Key focus areas 2018

  • Intensify the focus on achieving SHERQ targets.
  • Reconfigure Grindrod Limited in alignment with the refocused Freight Services business.
  • Drive increased asset utilisation across businesses.
  • Investigate opportunities to bulk up the division through acquisitions and mergers to achieve scale and improved sustainability.
  • Conclude the exit from the non-core rail businesses.
  • Maintain focus on meeting B-BBEE requirements in South Africa and neighbouring countries.

Key indicators

Economic

Continuing operations

Revenue

14.8%

R20 797 million

(2016: R18 116 million)

EBITDA

120.4%

R714 million

(2016: R324 million)

Operating profit/(loss)

10 600.0%

R420 million

(2016: (R4) million)

Attributable profit/(loss)

925.0%

R462 million

(2016: (R56) million)

Social

 

Number of employees*

15.9%

3 953 employees

(2016: 4 702)

Fatalities

2 fatalities

 

(2016: 0 fatalities)

LTIFR

32.3%

0.86

(2016: 0.65)

Social responsibility spend

16.7%

R4.5 million

(2016: R5.4 million)**

Environmental

 

GHG emissions (CO2 equivalent)^

15.2%

71 761 tonnes

(2016: 84 624 tonnes)

GHG emissions intensity^^

9.0%

4.08

(2016: 4.43)^^^

Water usage

7.3%

108 818kl

(2016: 117 438kl)

Water intensity^^^^

20.8%

17.48

(2016: 22.08)

* Includes joint ventures and associates at 100% shareholding.
** Restated to reflect effective shareholding of joint ventures and associates.
^ Total GHG emissions including scope 3 (tonnes CO2-e).
^^ grams CO2 per Rand revenue.
^^^ Re-presented for discontinued operations as detailed in the basis of preparation.
^^^^ kl per FTE.

2017 review

Strategic review and operational changes initiated in prior years resulted in a significant improvement in profits in continuing operations as market conditions improved. Continuing businesses, comprising Maputo Port and Terminals, Logistics and Marine Fuel and Agricultural Logistics, posted headline earnings of R598.2 million, a marked improvement of R290.3 million achieved in 2016.

Maputo Port and Terminals

Excluding the 2016 foreign currency translation reserve (FCTR) release of R120.3 million, relating to the disposal of Vitol Coal South Africa included in Terminals results, Port and Terminals earnings outperformed prior year by 74 percent to R182.1 million. The performance is underpinned by strong volume and commodity linked price participation rates at Terminals.

Maputo Port

Despite the 22 percent volume increase, buoyed by strong demand and infrastructure improvements, Port earnings at R72.0 million decreased by 24 percent compared to 2016 due to the impact of a stronger rand against the dollar, increased interest charges due to the debt funded channel dredge project and R12.0 million of proceeds as compensation for the Katanga bridge construction, which were included in the 2016 earnings.

Port volume increased to 18.2 million tonnes, the main driver being the completion of the 75-km access channel dredge project which opened the port to fully laden post panamax vessels. This project unlocked an increase of 40 percent in the Port’s capacity. The Port’s own volume handled (excluding sub concession volume) was a record at 6.8 million tonnes.

The dredging project forms part of the 30-year port masterplan, which was initiated in 2010, and includes making the port navigation channels and some berths accessible to larger vessels and reconstructing terminal infrastructure to match the increased cargo demand.

The subsequent project is to reconstruct three berths into two during 2018 in terms of an 18-month contract. The project includes changes to supporting terminal and warehouse infrastructure to load vessels up to 250m in length quicker and to capacity, improving turnaround times and berth utilisation. The three berths handle mainly sugar, grain and general cargo.

Terminals

Terminals trading earnings increased significantly to R110.1 million supported by an increase of dry-bulk terminal volume of 22 percent to 10.2 million tonnes (2016: 8.4 million tonnes).

The Matola Terminal posted the largest volume increase of 37 percent to 5.2 million tonnes, a record volume, at capacity utilisation of 71 percent compared to 52 percent in 2016. Matola was the first Maputo Port sub-concessionaire to gear its facilities to service post panamax vessels through its berth rehabilitation and quay offset project, and upgrades to its ship loaders to improve coal and magnetite loading times. Over 80 percent terminal utilisation capacity has been contracted for 2018.

Maputo Terminal volume increased to 0.8 million tonnes after a brief return of road haulage of low grade iron oxide to take advantage of high iron ore prices, and additional sized coal volume contracts secured during the year. The terminal has scalable annual capacity utilisation of 1.2 million tonnes.

A subdued vehicle market and significant devaluation of the Mozambican metical negatively affected the Maputo Car Terminal. The number of cars handled remained muted at 16 339 and well below annual capacity of 120 000 cars.

Richards Bay Terminal volumes of 3.9 millions tonnes were in line with 2016 volumes due to the impact of stormy weather at the start of the year, which caused loading delays of up to 27 days in the first half of the year. Coal volumes at Navitrade were 1.5 million tonnes compared to 1.2 million tonnes in 2016.

The Boot agreement with TNPA was signed in April 2017 and the Oiltanking Grindrod Calulo joint-venture board agreed to initiate the Ngqura Liquid Bulk Terminal project, a concession from ports operator TNPA. Engagement with stakeholders in the initial phase of this project is progressing.

Logistics

Logistics returned to profit from a loss of R91.3 million in 2016 to a profit of R221.8 million following consolidation and restructuring initiatives implemented in 2016 and 2017. Logistics businesses consist of Integrated Logistics, Ships Agency, Clearing and Forwarding, Continuing Rail Business and Coastal Shipping Service.

Integrated Logistics

This division, which houses the intermodal, fuel and vehicle transportation businesses, previously managed separately, benefited from infrastructure sharing and consolidation following management and operational restructuring. The division is now well positioned to grow from its current base and reported a loss reduction of 65 percent to R32.7 million this year (2016: (R93.8) million).

At Intermodal, tight margins impacted the South African business. However, performance during the second half of the year improved. The Maputo business continues to face the challenge of low volumes resulting in capacity under-utilisation.

The vehicle transportation business experienced tough market conditions, with minimal growth in new vehicle sales and a high level of competition in the industry. The business is however well positioned to capitalise on an upturn in the market.

Fuel transportation continued to reposition its business to optimise growth in Botswana and Namibia and to mitigate the impact of reduced local road-transport demand as a result of the now fully completed multi-purpose petroleum pipeline from Durban to Heidelberg. The business was awarded a material three-year contract for the distribution of liquid petroleum products to retail and commercial outlets.

Grindrod was awarded a significant five-year logistics contract by Syrah Resources, owner of the Balama Graphite Mine in northern Mozambique. The pit-to-port contract positions Grindrod as a key player in the region of Nacala, a growing port hub 500 km from Balama. Grindrod will be responsible for the transportation, storage and handling, container-packing and export-clearance of an expected annual 360 000 million tonnes of flake graphite at full production. During mine ramp-up, Grindrod provides interim logistics arrangements while its cross-dock facility outside the port of Nacala is being constructed.

Ships Agency

Despite strong competition in the ships agency services markets, Sturrock Grindrod Maritime posted earnings of R19.9 million during the year, albeit 18 percent lower than 2016. Its presence in certain regions in Africa is under review due to regional challenges. Potential acquisitions are being reviewed, which if successful, will unlock synergies and provide a platform for growth.

Clearing and Forwarding

Röhlig-Grindrod, a clearing and forwarding business, moved from its four Johannesburg facilities into its new and modern 21 000m2 warehouse with capacity for 36 000 pallet positions during the year. Its earnings at R17.7 million are 55 percent lower than 2016 due to the impact of tight margins and a reduction in customer base.

Continuing Rail Business

Continuing Rail businesses, comprising management and operational services for customers on the north-south corridor, continues to improve off a low base. Losses were halved to R6.6 million (2016: loss R19.5 million). The north-south corridor remains a strategic asset and Grindrod increased its share during the year to 74 percent by exercising its first right of refusal.

Coastal Shipping Service

Ocean Africa Container Lines reported earnings of R78.5 million, an increase of 10 percent on prior year. This business provides a shipping service between major ports in South Africa, Mozambique, Namibia and Angola, operates warehouses in Durban and Cape Town and multipurpose terminals in Durban for containerised, break-bulk and bulk cargoes.

Marine Fuel and Agricultural Logistics

This division returned to profit of R57.8 million from a loss of R189.8 million in 2016, underpinned by improvement in agricultural yields, with both Senwes and NWK reporting profits, and despite challenging trading conditions in the marine fuel trading business.