Trading

R120 m
Attributable income

15%
Contribution to group attributable income

8
Million tonnes traded

Key financial ratios		2010	2009
Margin	(%)	0,8	1,2
Debt:equity ratio		0,91:1	0,57:1
Return on ordinary shareholders’ equity	(%)	19,6	24,0
Return on net assets	(%)	12,4	23,0
Number of employees		369	156

The division aims to facilitate the marketing, efficient distribution and financing of a wide variety of commodities traded globally.

The division prides itself on developing lasting customer and supplier relationships, providing an enhanced service offering that includes commodity trading, logistics management, export/import documentation and financing activities. A key success factor is the ability to leverage logistics operations off the Grindrod group which provides customers and suppliers with efficiencies and a one-stop service. Complementary business practices across various commodities and geographical locations allow the division to develop synergies to further enhance customer service. The division has a wide target market that includes intermediary and end users of agricultural commodities, industrial raw materials and marine oil and lubricants.

Strategic objectives

•	Improve operating margin per tonne
	−	extend participation in the supply chain
	−	increase volume of high margin products
•	Maintain and develop relationships
	−	key suppliers
	−	key customers
	−	key service providers
	−	joint venture partnerships
	−	financial institutions
•	Leverage intra-group relationships and assets
	−	Shipping
	−	Freight Services
	−	Financial Services
•	Source and invest in strategic supply chain projects
	−	expand product range
	−	expand geographical presence
	−	develop new markets
	−	grow volumes

Operational review

Trading tonnage increased from 7,09 million metric tonnes in 2009 to 7,67 million metric tonnes in 2010, representing an 8,18% increase in volumes over the period. Operating margin per tonne declined from US$3,95 (R33,41) to US$3,14 (R23,06) in 2010. Exchange rate movements impacted profits negatively during the period. The average trading value of the Rand strengthened 13,2% against the US Dollar.

Income statement	2010 Rm	2009 Rm	Growth %
Revenue	23 101	20 335	14
EBITDA	188	256	(27)
Operating income	177	249	(29)
Attributable income	120	181	(34)

	Comments
	Volume growth
	New business development costs and foreign exchange rates negatively impacted profits

For the detailed statutory income statement, see the segmental analysis.

Statement of financial position	2010 Rm	2009 Rm	Growth %
Fixed assets/investments	511	446	15
Current assets	2 334	2 089	12
Total assets	2 845	2 535
Equity	715	683	5
Net debt	647	387	67
Other liabilities	1 483	1 465	1
Total equity and liabilities	2 845	2 535

The Trading division has seen a solid increase in revenue, primarily due to increased commodity prices and the expansion of trade into new markets and commodities. Significant restructuring and strategic investment costs, however, have reduced both operating profit and net profit. It is expected that this will turn around in 2011 complemented by certain strategic investments coming to fruition.

Volumes are expected to grow through new products such as bunker oil supply, coal, sugar and rice as well as the further development of new markets such as Asia and sub-Saharan Africa.

Strategic alliances and acquisitions have been a key success factor in the current financial year, the benefits of which will serve the division extremely well in 2011 and beyond. These include:

•	Initiated the London Queens Channel crude bunker oil physical supply project during 2010. This project was successfully implemented in difficult market conditions and is set to enhance divisional returns going forward;
•	The acquisition of a bunker trading business was successfully negotiated during the year;
•	The acquisition of a coal company based in the United Kingdom has served to further develop the coal trading desk;
•	Acquired an equity share in a stainless steel manufacturing company to provide an integrated stainless steel marketing solution; and
•	Development of chrome projects in South Africa.

The division was successful in the acquisition and retention of key human resources during 2010 and new offices and markets were established in:

•	Australia;
•	Brazil;
•	China;
•	United Kingdom;
•	Singapore; and
•	sub-Saharan Africa.

The division identified that the supply chain participation strategy designed to further embed operations into the supply chain of commodity marketing, goes hand in hand with leveraging operations off the Grindrod group asset base and strategic relationships. This approach has been implemented with sound success in 2010 and will continue to do so into the future.

Trading continues to face the following challenges/risks:

•	Credit and counterparty risk;
•	Foreign exchange risk;
•	Price risk – higher commodity prices result in increased utilisation of banking facilities;
•	Commodity market volatility;
•	Competition; and
•	Human resources.

A number of steps have been taken to mitigate these risks. Hedging commodity price risk and foreign exchange rate risk is standard practice, while credit and counterparty risk is mitigated through credit risk guarantee and management’s continual diligence in assessing counterparties. Lasting customer and supplier relationships help to ensure stability during market volatility.

The division has strived to develop a positive team spirit and a favourable working environment in order to retain experienced traders.

Agricultural commodities

Atlas Trading is a bulk agricultural trading division that participates at key points in the trading pipeline and includes product origination, shipping and logistics. Atlas prides itself on being a focused and flexible business partner with a sound reputation.

Presently Atlas is ranked as one of the larger players in the agricultural imported commodity supply industry in South Africa.

The vision of Atlas is to be a respected partner of choice providing end-to-end solutions in the global agricultural commodity sector. Its mission is to deliver value through targeted strategic partnerships with agri-related companies in emerging markets.

Atlas’ network of offices and established relationships provide innovative, efficient, integrated and holistic solutions to its customers’ agricultural raw material requirements, sourcing and supplying products globally. This includes distribution channel management, market intelligence and pricing strategies.

Wheat, corn, soya bean meal and other agricultural commodities are marketed in bulk to international third party customers. These commodities are purchased worldwide with primary destinations in Africa, South America and the eastern Mediterranean with delivery by chartered bulk vessels.

Atlas trades using various models including back-to-back contracting, selling from stock, financing farmers to gain guaranteed offtake, contracting with suppliers and customers for the medium term, financing strategic customers with extended credit terms and profit-sharing arrangements.

Marine fuels

The Cockett group was established in 1979 and has grown to be one of the largest value added resellers and physical marine fuel suppliers in the world. The group has developed an international network of offices to deliver a global service to its clients. In addition, Cockett is currently developing a network of physical supply operations in strategic locations with a presence of offices in the Australia, United Kingdom, Singapore, South Africa, France, South Korea, Brazil and China. Cockett has an excellent reputation in the marine fuel sector supported by a highly experienced and motivated trading team with dedicated in-house technical support.

The group currently supplies approximately five million tonnes of marine fuels per annum. Clients are therefore able to directly benefit from its considerable purchasing power and knowledge of a highly fragmented bunker market.

Cockett Marine will help a company achieve broad market access, meaningful economies of scale with higher availability of products and services while minimising the exposure to fuel volume, delivery, price and quality risks.

Atlas Trading is a bulk agricultural trading division that participates at key points in the trading pipeline and includes product origination, shipping and logistics.

Industrial raw materials

Oreport is an international marketing organisation specialising in the worldwide procurement, physical movement and distribution of industrial raw materials. Oreport provides a complete managed solution from the materials point of origin through to delivery to the final purchaser and collection of payment.

Oreport's product portfolio includes steel, stainless steel, chrome and manganese ores, bulk ferroalloys, coal, coke, anthracite, pig iron, mill rolls and other speciality products.

In addition, investments in both upstream and downstream operations in the raw materials sector have further strengthened the strategic base of the company.

By incorporating all the elements of services offered, from marketing to logistics through to final payment, customers receive a complete service managing the chain of events from the origin of the materials through to their final use.

While being truly South African, Oreport's business network has extended to local and international markets that offer the right products at the right price, whilst ensuring a high level of service is maintained.