Piracy affecting Grindrod

JSE-listed shipping and logistics business Grindrod says piracy has affected the group’s earnings in the year to December. CE Alan Olivier says piracy off the Horn of Africa has had a negative impact on the South African firm's bottom line.

Business Report newspaper says today the miscreants have affected particularly in the group’s Capesize bulk carrier business that mostly carries contractual cargo from Brazil into the Persian Gulf region. Olivier said Grindrod had to divert its ships around the high-risk zone in the Indian Ocean as far as possible, which obviously added significant cost. “Effectively we are losing a voyage a year so when we would be doing six voyages a year (a ship) we are now doing five voyages a year and receiving the same revenue,” he told he business daily.

“But it does have a positive impact in that if you can only do five voyages a year you need one sixth more ships in the market, which absorbs more ships into the market.” The absorption of ships will reduce the oversupply and improve the potential to increase shipping rates. Olivier added that piracy was also having a negative impact on the chemical side of the group’s business because there was a significant chemical trade into the east Africa coast and the Persian Gulf region. 

He said there were increased insurance costs, higher fuel costs for deviations and the cost of exercising best management practice, which involved improving security by putting razor wire around ships and installing water cannon, Business Report continued. All of this added cost to the operation of ships, he said. While Grindrod did not have a significant number of ships trading specifically into that area, Olivier said pirates had been operating in Mozambican waters and 1500 nautical miles off the Somali coast “so they are right across the ocean”. 

Olivier said the group had not had any recent piracy incidents, but some of its partners had and one of Grindrod’s Capesize carriers was followed for about 40 minutes about 18 months ago before the pirates gave up. Grindrod yesterday reported that attributable income declined by 11% to R780.3 million in the year to December from R872.8 million in the previous year. The non-shipping business contributed 54% of Grindrod’s attributable income, which is the first time in the company’s 101-year history that shipping did not contribute the majority of the group’s earnings. 

Headline earnings a share declined by 12 percent to R1.676 from R1.896. 

Olivier attributed the decline in earnings and headline earnings a share primarily to a R166m impact from the stronger exchange rate of the rand against the US dollar, lower profits on the sale of ships of R21 million compared with R253 million in the previous year, and business development costs. 

But he said volume growth in ship operating activities, together with improved profitability from freight services and financial services, contributed positively to results. Revenue rose by 9% to R30.2 billion from R27.7 billion, while operating profit dropped by 16 percent to R963.7 million from R1.14 billion. A dividend of 54c was declared, 10 percent lower than last year’s 60c.