Further impairments of non-core assets to the tune of just over R583 million were reported by Grindrod on Thursday, steering the Durban-based freight, port terminals and financial services group to a headline loss for its full-year to the end of December 2020.
Grindrod’s core revenue came in at R4.7 billion, marginally down on the prior year.
Despite its trading profit from core operations being flat at R1.4 billion, the group reported a headline loss of R168.1 million.
This saw the company posting a headline loss per share of 24.8 cents. No final dividend was declared for ordinary shareholders, compared with 14.2 cents declared for its 2019 financial year.
However, the group declared a final dividend of 312 cents per share for its preference shareholders out of income reserves. In 2019, Grindrod paid out 445 cents per cumulative, non-redeemable, non-participating and non-convertible preference share.
Explaining the write-downs in its JSE Sens statement, the group says: “Results include impairments and fair value losses on private and property equity portfolio of R329.9 million. The carrying value of these investments, after impairments and fair value losses, is R1.5 billion.”
According to Grindrod, the private equity portfolio consists of private and property equity investments and loans provided to KwaZulu-Natal North Coast property companies. The portfolio is subject to a disposal process.
“With respect to the assessment of the carrying value of the North Coast property loans at period end, impairments and fair value losses of R253.4 million were recorded. The carrying value of these loans at year end is R1 billion,” the group further notes.
“Impairments and fair value losses are not added back in calculating headline earnings,” it points out.
“The group incurred an earnings loss of R415.2 million for the period, mainly due to the fair value and impairments [detailed above] against a loss of R615.6 million in 2019,” Grindrod says.
During a results webcast to investors and analysts on Thursday, Grindrod CEO Andrew Waller played down the impairments, reiterating that these relate to non-core assets that are up for sale.
He instead chose to focus on the fact that the group’s core port terminals, freight (regional shipping and rail), and banking businesses were cash-generative and “delivered a robust operational performance” despite the impact of Covid-19.
In an interview with Moneyweb, however, Waller conceded that the impairments weighed down the group and pushed it into a loss-making position for the 2020 financial year.
“What we have is a whole lot of non-core assets, which we decided to exit from a few years ago. The idea is that the cash generated from the sales will go towards paying debt and the rest would go to shareholders when we start paying [ordinary share] dividends again,” he says.
“There have been challenges in selling some of these assets, including our marine fuels business, especially in the wake of Covid-19 disruptions…. But we still plan to sell these assets and there are some interested buyers,” adds Waller.
Anthony Clark, an independent analyst at Small Talk Daily Research, tells Moneyweb that Grindrod’s trading update issued on February 22 “was not the rosy picture the market wanted to hear” – especially the size of the impairments and the headline earnings loss.
“Grindrod’s share price sank on that news, and Thursday’s results presentation saw the stocks fall to 485 cents [-2.6%], translating into a decline of 15% in the past weeks,” adds Clark.
“For the past two years Grindrod has hooked the market with the narrative that its hefty net asset value could be un-locked and long-suffering shareholders would reap the rewards of accumulated non-core assets being sold to unlock material upside value,” he explains.
He says that as time went on and “talk and activity on asset sales swirled”, the group’s share price “moved nicely from the mid- 300 cent per share to a recent high of 570 cents”.
“Some asset sales were concluded in the past two years. Piecemeal parts of private equity were sold [8 of 33 assets have gone] and the stakes in agricultural interests NWK and Senwes were also disposed,” notes Clark.
“However, the big assets of Grindrod Bank, private equity and the KZN land [including debt] were the key morsels that the market was looking for value unlock on…. That hope has evaporated in the recent trading update and release of the group’s full-year results on Thursday,” he adds.
Nevertheless, Clark says all is not sunk.
“The core ports and logistics business performed exceedingly well in challenging conditions amidst Covid-19. These core assets, if you strip off the once-off non-cash items, actually bolster the case for Grindrod,” he says.
Listen: Grindrod CEO Andrew Waller discusses the company’s annual results