Business: 2009 Unaudited Interim Results and Dividend Announcement
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These results were achieved against the backdrop of a worldwide recession, leading to substantially reduced economic activity, lower trade volumes, declining commodity prices and a continued lack of credit, which increased counterparty risk and significantly impacted shipping markets.
In reaction to these conditions, Grindrod focused its efforts on the key operational areas of:
protecting the balance sheet and ensuring sufficient liquidity; increasing contract cover and selectively selling ships to lock in value and improve liquidity; reducing costs and improving efficiencies to support the earnings base; and monitoring counterparty risk and protecting customer relationships to ensure continued growth as conditions normalise.
While earnings for the six months were not dissimilar to those achieved prior to the record levels of 2008, the composition of the earnings has changed. The actions to diversify the group from Shipping to a broader spectrum of freight and logistics activities have supported the profitability of the group during this period although these businesses were by no means unaffected by the global economic turmoil.
The fortunes of the Shipping division changed substantially since the fourth quarter of 2008, when shipping markets experienced the sharpest decline in history. Attributable earnings declined by 68% compared to the first half of 2008 on the back of the significant drop in shipping rates, triggered by the lack of credit to support international trade and the slowdown in major economies.
The Trading division’s earnings grew considerably on the back of operational improvement, increased margins and the buy up to 100% of the marine fuel and industrial raw materials trading businesses. Despite extremely difficult trading conditions in the Logistics, Intermodal and Ships Agency businesses, Freight Services grew earnings by 15% through a good performance from Terminals. Financial Services experienced growth in earnings of 84%, with commendable performance across key portfolios.
The credit crisis and global economic downturn have impacted volumes of cargo moved by sea, as well as land based freight services businesses. However, there has been recent improvement in international business activity, particularly in the demand for and price of commodities. A recovery in shipping markets will, however, be countered by the delivery of a large number of new ships in the short-term.
The group has a low-cost fleet of ships, a high level of contract cover, considerable cash resources and continues to anticipate earnings growth from Trading, Freight Services and Financial Services businesses for the full year. This positions it favourably for a recovery in world markets in the medium-term. The group will have lower earnings for the full year compared with the extraordinary levels achieved in 2008.
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