Grindrod plans to sell locomotive assets
GRINDROD, the listed integrated logistics service supplier, has been approached by “one or two parties” about the acquisition of its locomotive assembly business, following its decision to dispose of the business.
Chief executive Alan Olivier yesterday said it was still in the early stages of discussions, but it hoped to have finalised the disposal by the end of the group’s financial year.
The decision to sell this business followed a board review of the group’s strategy.
Due to the continued depressed state of the market, Grindrod had to raise an impairment of R675.3 million in the rail business.
RRL Grindrod Locomotives is involved in locomotive manufacturing, refurbishment and maintenance and expanded its facilities in Pretoria West in 2014 at a cost of R40m to enable the business to better serve the demands of the African continent.
The company is 51 percent owned by listed Grindrod. Empowerment group Solethu Investments owns 26 percent, with the balance of the shareholding held by its three founding partners. Olivier stressed yesterday it was not shutting down the business, which employed about 150 people.
He said Grindrod was not involved in any other manufacturing business and strategically it did not make sense for the group as an integrated logistics services provider to be manufacturing locomotives.
“We don’t build ships, we own and operate ships. The same with locomotives. We want to operate them and don’t want to and need to build them.
“We got into it (manufacturing) because when we acquired the business it had a logistics operating part and an assembly part that suddenly grew. It only had a couple of locomotives and had only built two when we originally went into the business.
“It’s a volatile and cyclical business. The customers are miners and African states generally for our equipment and it is lumpy. These are 30-year assets, so once people have built their locomotives they don’t need locomotive again for 30 years. We are not General Electric, we don’t have access to the global market,” he said.
Olivier said the half year to June had been extremely difficult and the group’s results, other than impairment in the rail business, had been driven by very low volumes as a result of depressed commodity markets.
Grindrod yesterday reported a headline loss a share of 50.8c for the six months to June from the headline earnings a share of 43.6c in the previous corresponding period.
Apart from the R675.3m impairment in the rail business, there was also a R50m impairment in the shipping business from the sale of a ship.
Revenue dropped by 8 percent to R4.65bn from R5.07bn.
The group produced an operating loss of R135.03m compared with the operating profit of R284.46m in the prior period.
The trading profit was materially lower at R299m, way down from R943m.
Cash generated by operations slumped by 68 percent to R216.7m from R677.5m. A dividend was not declared. Grindrod shares plunged 5.42 percent on the JSE yesterday to close at R11.35.