The severity of the continued downturn in global markets adversely influenced the majority of the group’s businesses resulting in a substantial loss being reported for the second consecutive year.
We have, however, used the difficult environment and year to restructure and redirect the group. The restructure involved exiting certain businesses resulting in material impairments. We hope that the new projects will be delivered in the 2017 year.
Global markets recorded new lows in the first quarter of 2016. Markets stabilised in the second half of the year, improving further towards year-end and into 2017. This trend is giving rise to careful optimism that markets may have bottomed out.
Global shipping markets reeled under the combined effects of low demand for commodity movement and an oversupply of fleet capacity. Shipping rates slumped, with dry-bulk rates at an all-time low in February 2016. Dry-bulk rates reflected improvement during the year, moving above cash cost, but remaining below profit-making at year-end. The dry-bulk market is expecting healthier demand in 2017 following an increase in demolitions and a decrease in newbuilding deliveries. The tanker market will continue to remain under stress with a projected fleet growth of five per cent for the second consecutive year.
Demand for land-based logistics was also weak. This impacted negatively on the utilisation of Grindrod’s integrated product chains within the Freight Services division, although results in the second half of the year were substantially better than in the first half.
Global financial markets performed well, supporting continued growth in the Financial Services division and laying the foundation for further expansion, notably its asset-management services.
The Grindrod strategy centres around the delivery of strategic projects and acquisitions that build on current strengths or unlock opportunities to diversify into other commodities which offer sustainable logistics potential.
The cancellation or postponement of commodity-project investments in southern Africa as a result of weak economic growth continues to affect the short-term viability of Grindrod’s planned capital investments.
Following a review of the strategy the board supported management’s proposal to exit the rail-manufacturing businesses. This decision was one of the restructuring measures taken to counter the effects of the adverse market conditions and the board regrets that loyal employees lost their jobs through circumstances outside their control.
The achievement of Grindrod’s long-term growth objectives is guided by well-defined corporate-governance criteria to ensure that optimum value is unlocked through disciplined and consistent management. At the base of the governance structure is the King Report on Corporate Governance. The latest report, King IV, was released early in November, with an implementation date in financial years starting from April 2017.
The board decided on the early adoption of King IV as it fully supports the increased focus on ethical leadership and an organisation’s role in society, which adds depth to the already entrenched King principles around corporate citizenship, sustainable development, stakeholder inclusivity and integrated reporting.
Grindrod continues to make the safety of its employees, contractors and visitors its number one priority. The board is saddened by a fatality on board a ship in 2016. The incident was appropriately reported and investigated and steps were taken to raise awareness of the safety rule that was transgressed at the time. A continued focus on the Grindrod sustainability pillar of safety and health is evidenced in the improvement in the group’s safety record.
Similarly, steps to mitigate the effect of Grindrod’s activities on the environment, another sustainability pillar, will continue, to achieve tangible targets set in the Vision 2020 manifesto.
Grindrod retained its inclusion in the FTSE/JSE Responsible Investment Top 30 index, launched in 2015, with improvement in its top-level ESG rating and second-level pillar scores.
The board anticipates an improvement in the global economy, although markets will remain under pressure. Forecasts point to a marginally higher global economic growth rate of 3.6 per cent, an expected 2.9 per cent growth in sub-Saharan Africa and 1.3 per cent in South Africa.
The board is confident that Grindrod has the resources, skills and expertise to continue pursuing its strategic objectives and grow a sustainable business, to the benefit of all stakeholders.
Thank you to employees for their continued dedication, to management for its insightful contributions to strategy formulation and implementation and fellow board members for providing experienced and valued strategic oversight and direction.
I thank Cato Brahde and Jannie Durand for their contribution to the board over many years and welcome newly appointed non-executive directors Gerhard Kotze, Zola Malinga and Raymond Ndlovu. Their high-level business experience will undoubtedly benefit Grindrod in years to come.
1 March 2017
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