Grindrod Ltd (GRDLF) (Q2 2024) Earnings Call Highlights: Navigating Challenges with Strategic Growth

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  • EBITDA: ZAR1 billion for the first half of the year.

  • Core Headline Earnings: ZAR562 million, similar to last year.

  • Dividend: ZAR0.23, below last year's ZAR0.344.

  • Revenue: Slight dip of 1% period-on-period.

  • Cash Generated from Operations: 13% growth, representing an 88% cash conversion ratio.

  • Net Debt: Increased by ZAR401 million to ZAR1.6 billion.

  • Net Debt to Equity Ratio: 16%.

  • Capital Expenditure: ZAR460 million, with 69% being expansionary.

  • Port Volume Growth: 18% increase to 6.9 million tonnes.

  • Logistics Revenue Growth: 33% increase due to cross-border transportation.

  • Interest Expense: Increased from ZAR164 million to ZAR210 million.

  • Net Asset Value: ZAR13.84, with ZAR11.48 relating to core business.

Release Date: August 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Grindrod Ltd (GRDLF) reported a core EBITDA of ZAR1 billion for the first half of the year, indicating strong operational performance.

  • The company achieved a significant 18% increase in port volumes at Maputo, reaching 6.9 million tonnes, which is a record performance.

  • Grindrod Ltd (GRDLF) has successfully redeployed 13 locomotives from Sierra Leone to South Africa, which is expected to enhance rail operations.

  • The logistics segment saw a 38% earnings growth, driven by strong performance in ships agency and clearing and forwarding businesses.

  • The company declared a dividend of ZAR0.23, reflecting disciplined capital allocation and a 13% increase in cash generated from operations.

Negative Points

  • The overall revenue for Grindrod Ltd (GRDLF) remained flat, with a slight 1% dip period-on-period, due to reduced earnings from value-added services.

  • EBITDA margins in the ports and terminals segment decreased from 30% to 28%, impacted by lower volumes and adverse weather conditions.

  • The coal segment, a significant part of the company's portfolio, remained depressed, affecting overall performance.

  • The company faced challenges in the container business due to logistics constraints and declining rates, impacting throughput.

  • Grindrod Ltd (GRDLF) reported a net loss of ZAR80 million in its non-core business, driven by reduced earnings from the marine fuel business and fair value losses in the private equity portfolio.

Q & A Highlights

Q: What is the longer-term targeted EBITDA margin for the ports and terminals segment? A: Our preference is to aim for an EBITDA margin between 30% and 35%. During boom times, this range can shift to 30% to 40%, while in difficult times, such as when coal prices drop significantly, it may fall between 25% and 30%. On the upside, we look at 35% to 40%, with the normal range being 30% to 35%.

Q: Can you comment on the company's debt and capital expenditure plans? A: We have ZAR1.6 billion in net debt at the end of June, excluding ZAR1.1 billion that is ring-fenced. Our CapEx bill is ZAR2.4 billion, and theoretically, ZAR1.3 billion will be financed. We focus on core assets for debt considerations, excluding non-core assets like marine fuel business equity and property, which require further work.

Q: What is the expected uplift from deploying the 13 locomotives repatriated from Sierra Leone? A: These locomotives are at low carrying values, and we plan to spend just under ZAR60 million on refurbishments. We expect to see a plausible uplift starting in 2025, with potential earnings of ZAR30 million per quarter from leasing arrangements.

Q: Does the value-added services (VAS) side of the business remain part of the strategy going forward? A: VAS is an opportunistic position we take in the market as a terminal operator. While it is not a core strategy, there are creative commercial contracting regimes that allow us to participate in good earnings times without compromising our volume focus.

Q: Can you provide an update on Grindrod's involvement in SA private rail access and potential large projects? A: We are encouraged by developments in rail opportunities. Our strategy involves linking strategic terminals with customer bases while recognizing rail authorities. We focus on creating efficiencies and cost-effective corridors to add value for stakeholders. For large projects, we evaluate quality and potential for project financing without heavily relying on our balance sheet.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.