Chairman’s report
Grindrod had an exceptional year in 2008 which culminated in a profit of R2,1 billion (475 cents per share), an 81% increase over the record earnings in 2007. These results were achieved on the back of record high drybulk shipping markets, increased tanker earnings and improved performances from Trading, Freight Services and Financial Services. They were further achieved despite having to absorb the impact of a fourth quarter collapse in shipping markets and impairment charges on certain contracts and ship values due to the world financial crisis. The board decided to maintain its dividend policy of 3,5 times cover notwithstanding the volatility in the market. A final dividend of 68 cents per ordinary share was declared, bringing the total dividend for the year to 136 cents, 74% higher than the total dividend for the prior year. The strength of the company’s balance sheet has contributed greatly to the group’s capacity to withstand these turbulent times and produce positive results for its shareholders. The strong balance sheet and good cash flow generation means that the group has sufficient cash resources and committed credit lines to comfortably accommodate its contracted capital expenditure. The strategy of maintaining a balance between open and contracted earnings in the shipping sector and not taking on charters or acquiring ships at the peak of the market, has stood the group in good stead in recent times. The company further has a history of contracting with strong counterparties and is focusing even more vigorously in this area in the current changed business environment. The consolidation of the land-based freight businesses and the expansion of portside terminal activities, particularly in Maputo, have been highlights of the infrastructural development strategy over the past year. The Trading division has been expanded through the acquisition of the outside shareholdings in both the Cockett Marine and Oreport Holdings businesses during the year. Both companies are now 100% held. |
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| BUSINESS ENVIRONMENT | |||
| After nine consecutive years of growth for the group, 2009 is likely to be a
year of consolidation and reassessment of future strategy in the face of a
completely different business environment. As referred to earlier, there were substantial challenges in the world economy during the final quarter of 2008 and these have become even more prevalent in early 2009. The world has entered into a major downturn in the aftermath of the financial market shocks. The South African economy has not been immune to global events and local economic activity has been constrained by the worldwide slowdown and high domestic interest rates. The JSE has followed the severe declines experienced in stock exchanges around the world. The worldwide credit squeeze had a major impact on shipping markets, particularly the drybulk market. The Baltic Dry Index fell more than 90% from a record high in May 2008. It has subsequently recovered some of its losses during the past few months on the back of demand for commodities from the East. The tanker market was not as severely impacted as the dry sector and followed a fairly steady pattern, but has recently weakened. On a more positive note it is anticipated that China and India will achieve economic growth during 2009, in contrast to the deep recessionary position of most of the developed economies. This should compensate shipping markets to some extent for the lack of demand in Europe and the United States of America. |
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| BLACK ECONOMIC EMPOWERMENT (BEE) | |||
| Subsequent to year-end, the Freight Services division
concluded a BEE transaction with Calulo Petrochemicals
(Pty) Limited (Calulo) and Adopt-a-School Foundation
(AAS) for the disposal of a 25% plus one share interest in
Grindrod (South Africa) (Pty) Limited (GSA) subject to a
ten-year lock-in period. Calulo is a BEE company with
interests in the petrochemical sector and is Grindrod’s
empowerment partner in Unical, the bunkering business
situated in the Durban and Cape Town harbours. AAS is
a section 21 company which supports the development
of schools in previously disadvantaged areas of South
Africa. The majority of Grindrod’s South African based
assets fall within GSA. The group has invested in various primary education and school facility initiatives in rural areas of KwaZulu-Natal. Grindrod has also committed to again support a Southern African humanitarian expedition by Kingsley Holgate in 2009. The group has made constructive progress in the other scorecard requirements of black economic development and is well ahead of its objectives in the South African based Freight Services division. Further details of these activities are available in our sustainability report. |
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| GOVERNANCE AND RISK MANAGEMENT | |||
| As mentioned earlier, the world financial crisis and
collapse in shipping markets have again highlighted the
importance of comprehensive risk management and
corporate governance structures. The risk models and
benchmark procedures within the group played a
significant role in ensuring the current financial strength of
the group during the year. View details of the risk management
processes and key risks facing the group. Although the board does not have a separate risk committee to perform this function, a significant portion of the board’s time is set aside to review and assess the group risk position on a quarterly basis.The audit and remuneration/nomination committees, which meet on a regular basis, provide the board with the necessary assurance that the audit and remuneration structures and processes are being correctly applied by management. Proposals related to director appointments, evaluation and training are also dealt with by the remuneration/nomination committee. |
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| SUSTAINABLE DEVELOPMENT | |||
| The group is committed to an open and transparent
dialogue with its stakeholders in line with global best
practice and is further committed to reporting in terms of
the G3 guidelines of the Global Reporting Initiative (GRI).
Efforts in this regard and a GRI reference table are
included in the annual report. The company was again successful in its application for participation in the Social Responsibility Investment Index (SRI) of the JSE. The entry criteria were even more demanding than before and therefore the qualification is an indication of the solid performance in the non-financial activities of the group. |
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| BOARD OF DIRECTORS | |||
| It is my privilege to welcome Thina Siwendu and Walter
Geach who were appointed as independent nonexecutive
directors during the past year. It is also to be
noted that the board of directors has extended the term
of Tony Norton for a further year, despite him having
reached the maximum age of 70 years for non-executive
directors in February 2009. His commercial experience is
invaluable to the board. These appointments enable the board to continue to have a balance of skills and expertise appropriate to the nature of the group’s local and international business activities. |
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| OUTLOOK | |||
| While 2008 was an exceptional year in the group’s history, the current year will be far more challenging. The turmoil in international markets and the decline in drybulk shipping markets will have a major impact on performance this year. The group will, however, continue to maintain its conservative strategy and is well positioned to take advantage of acquisition opportunities when these arise. The company has a long-serving dynamic management team who are equipped with the necessary industry experience and skill and will no doubt continue to prosper through the economic cycles. | |||
| APPRECIATION | |||
| I extend my sincere appreciation to the executive
management team, headed up by Alan Olivier, and every
member of staff on their achievements in 2008. I further thank the non-executive directors for their contributions to strategic policy, governance and growth of the group. |
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| I A J Clark | |||
| Chairman | |||
| Durban | |||
| 25 February 2009 |
