Morning, everyone. Okay, my microphone works. Yeah. Thank you. Good morning, everyone. Ladies and gentlemen, thanks for joining us this morning on our results. I know you always criticize that we don't share the information the day before for you to grill us. That's done on purpose. But as normal, we will be available next week for those who've got specific questions for us, to which we can respond. We will take questions this morning as well. I'm not sure if you've got anyone listening in, but there will be process at the end of the presentation for you to ask us questions, and those will largely be handled by Fathima. If we can start. Just a minute. Bring it. Oh, before I start, there's exciting news for us. As you know, we are operating in Sierra Leone.
We had an iron ore contract, we had 13 locomotives that were deployed there. I think over the duration of the contract, which is just less than three years, we've done 18 million tonnes. In fact, first five months of this year, we did over 3 million tonnes hauling from the mine in Tonkolili to the terminal. After the mutual separation or cessation of the agreement with the customer, we welcome the opportunity to redeploy those locomotives. I'm quite pleased that they arrived last night, I think in Durban, four of those are being discharged, and we'll send them to Pretoria in our workshop. They will be spruced up a bit to be ready for deployment. We're quite excited about that. I know one of my COs, in fact, the rail CO has been complaining to me, saying he needs a fleet.
I said, "Well, I've got a fleet for you now. I've paid a fortune to bring those things here, let's hope that we can deploy them, if we can deploy them at 100% utilization, hopefully it's a license to get the new ones." Let's see. I'm quite pleased with that. Before we start, on the overview, this has been a very challenging environment this year. I must say. Maybe this is the third presentation where I say it's hectic when you look at the highlights, it doesn't look so hectic. It sounds like I'm not being truthful, but it has indeed been difficult. If you look at the macro context, general interest rates are relatively high in most instances, even though we're starting to see some easing in some of the economies.
The economic global growth is projected at a steady 3.2%, which is not bad, because within that you get India at over 8% last year. China's economy expanded by 5% in the first half of this year, which was really in line with the target that they had set themselves. As you know, China is the main importer of what we do or what we move. Of course, within this growth, quarter two slowed down to 4.7% year-on-year. There is a bit of pressure in the system in China, I'll talk a bit more when I cover the outlook in terms of how we see the next 12 months, short to medium term. As I've said earlier, if you look at India seems to be moving very good, actually. It's very solid.
Last year, India fiscal year 2023, 2024, they closed it with a bang, surpassing all market estimates and expectations at 8.15% growth. We expect this to sustain itself, and it's good for us going forward. For three consecutive years, they've actually been averaging around 8.3%, which is quite healthy. You can see, I mean, China, we used to talk about 9%, 10% in the good old days, and India has really surpassed them completely. All of this is happening despite the global uncertainties, and this is also driven by strong domestic demand and the government efforts towards reforms and capital expenditure. India looks very promising. Another country where we operate, as you know, is in Mozambique. The economy remains really resilient. It is expected or projected to grow at 4.3% this year. The strongest growth since 2015. It's looking really good.
The other major, which is important for Mozambique is their inflation rate. Their headline inflation has been really low, currently at 3.3% as in April, sorry. Last year was at 5.3%. It seems like they're holding off well. What is a bit of a sticky point there, as some of you may know, I see the bankers here, is the constraint, which is measured in the reserve ratio requirement in country. Even though the interest rates are easing, the level at 15.75% is still relatively high, which makes the cost of funding in country quite high. As we also know, there are elections coming up in October. As I've said earlier this year, that where we operate, South Africa was going to have elections. We had it, and it worked well. We're looking in Mozambique, I'm very upbeat that it's going to be positive outcome.
Coming back home, the economy at home is quite depressed, as we know, but we've got some level of optimism given the outcome of the elections. Despite the marginal contraction in our real GDP in the first quarter, we've got some uptick of 0.5%, if that's worth to mention. I think overall, some serious work needs to be done in country to change the tide. SADC in general, the economic growth is projected at 2.2% this year. Zambia in particular is impacted by droughts, as we know. It's really not good, and the power shortages. That's one area to really look at, and I'm quite pleased that the relations between Zambia and DRC are back to normal. We got a bit of a panic when they closed the border. I think that seems to have been resolved, and we're happy that it has been.
East Africa still remains a shining region at 4.9% projection in terms of economic growth. We are pleased with that because that's one area where we operate. Coming closer to the commodities that we move. This is a familiar slide to all of you. You can see that it's not really looking good. On the left-hand of the slide, other than the containers, I've put in what I call green mineral commodities, which are used in generating green power. You can see that the portfolio has by and large, underperformed considerably. In fact, I think the graphite and lithium are quite impacted at this stage.
The story on the graphite is a very interesting one in that there seems to be some synthetic lithium in China, and also there is a geopolitical play in terms of who holds onto what resources on graphite between the U.S. and China. One hopes that the long-term fundamentals remain intact. It is one area that we need to really look into very closely, because some of you remember two, three years ago, we were very clear that our strategy will be to introduce these commodities in our mix to offset any impact on the traditional commodities that we move. If you look on the right-hand side of the slide, is the traditional cargoes that we move. The iron ore seems to hold, no movement. The chrome seems to be resilient as well, currently. Ferrochrome, not much of it that we move.
Manganese is moving to the negative in a way, but still relatively there. In fact, it is positive, apologies. Coal, which you know is dominant in our portfolio of commodities, has remained depressed, and I did warn all of us in this room, or in the other room in Maslow, that it is something to watch, and I think I gave you the cutoff price to look into. If you have modelled it correctly, you would know how the results would look like given the ratio of coal, to the overall volumes that we move. The scenario on containers is slightly different. Even though the rates are quite negative at the moment, we have seen some spikes in some months because of what is happening in the Red Sea, as a result of safety concerns.
You take that and you combine the general decline in rates with the logistics constraints specifically for our businesses, it has an impact in the throughput from our container depot businesses. Our container depot business is about bringing the box, fixing it, and taking it out. If you can do that as quickly as you can, you make as much money as you can. Now, for them to be evacuated out of your depot, you need the port to function, so we can work out the impact of that. We remain upbeat going forward, and that is why we are still into the container business in a meaningful way, and hopefully we will be looking to build in Richards Bay, as you have seen the announcement on that bid.
If you look at the actual performance on the backdrop of what I have just highlighted. Maybe before I go to the operational items and the numbers, we promote a safe work environment. Unfortunately, I am saddened that one of our employees lost his life during the work in Durban Port Terminal. We are saddened by that, and Grindrod always ensures that when an employee comes to work, they must return home safe. This incident was very unfortunate. We have implemented the PASOPA program across all our operations to ensure that we can do corrective measures to drive high safety standards across all our businesses. I am quite pleased that that program is starting to yield some results. Our LTIFR at 0.45 remains below our target of 0.5.
The only reason why it's not improving is that the working hours, which are key metrics in that calculation, have come down in line with some volume reduction in parts of our operations. If you look at our operations, we are very pleased with the performance from the port in Maputo. They achieved 6.9 million tonnes, 18% up on prior year. They were reluctant for me to flag it as a record, so I didn't tell you that. The dry bulk terminal volumes for all the Grindrod terminals that we operate directly were marginally up 3% on the first half of last year, coming at 8.4 million tonnes. Within that, we had 20% volume growth in Richards Bay alone. If you look at our financials, ZAR 1 billion EBITDA, we're quite pleased with that. Not to the extent that we'd have liked.
I'll leave it for Fathima to give you more detail around that number. That's our core EBITDA that we generated in the first half of this year. Out of that, we delivered core headline earnings of ZAR 562 million, which is a similar level of performance compared to last year. I think when Fathima takes you through the numbers, you'll see the change between how much the port contributed to that relative to our own operations. That's a benefit of running a portfolio of assets. When one asset doesn't perform, one hopes that the other one does, so that overall your performance either improves or you're able to sustain it. We're quite chuffed with that, if I can use that term. We are very disciplined in our capital allocation.
If you look at the cash that we've generated, which grew 13% from our operations, we are pleased to give you a dividend of ZAR 0.23 as a result of that. That is below the ZAR 0.344 that we gave you last year. Again, in March or February, was it March? In March, we did indicate that we'll be moving back into our dividend policy strictly, which is three to four times core headline earnings cover. Of course, it changes if you use our normal overall headline earnings. The dividend that we debated with the board and the investment committee, we had to explain it very hard how we came in at 3.5 times cover when we're sitting with the cash of over ZAR 2 billion if you include the ring-fenced cash. I'll leave it for Fathima to give you a rundown on that.
Overall, I'm pleased with what we've done. I'm slightly disappointed that we're not delivering the consistent growth that we are looking for, as indicated earlier, the market dynamics impacted our performance. Not forgetting to mention that we had an impact of cyclonic events at the first quarter of this year. If you look at the operational review on port and terminals itself, the volume grew 18% to 6.9. The focus area for this rail business is on rail handling within the terminal. What is quite exciting about the main port is that they're making some significant technological advances. They've brought in CFM. They're interfacing or integrating their systems, so they create visibility on the trains coming in and out of the port in order to ensure that the turnaround time is improved. That will have a positive knock-on effect on the entire corridor.
One of the constraints around the corridor is that the train goes into Maputo and it takes a while to come back. This is one area where if the delays at the port is reduced significantly, then it releases capacity on the corridor. We overlay that with the technological-enabled visualization project, allowing the customer to be able to view their cargo as it runs through the corridor. The key thing is to make sure that we can now integrate at the border and avoid and minimize any stoppages and delays at the border. If we can run a seamless train or even if it has to be interfaced with TFR, it needs to be done in the most efficient way. If you look at our own terminals, again, we're at 0.4, marginally up on last year.
Matola in particular at 4.1 million tonnes versus 4.2, there's a marginal decline there. Again, you'll see the ratio of that volume is 88% magnetite, so we've got more magnetite than we did last year, which is encouraging. That's our sustainable cargo flow going forward. As I've said, Richards Bay delivered 20% growth on volumes. That's the chart. I cheated a bit on this chart. I put total volume for terminals just to show you the average volume performance between 2022 and 2024, if you compare the first halves, which is the gray. Exciting growth in port. It's really good stuff happening there. Particularly underpinned by chrome volume. I had a benefit of meeting some of the customers last night, and they're quite pleased with the service level and performance that they are getting at the port.
In the logistics space, which is really our platform, in terms of allowing us to utilize our infrastructure. Our ships agency and clearing and forwarding business earnings growth of 38% is phenomenal. In fact, I think it's a record. These are the businesses that really provide logistic services, such as clearing, not just only clearing and forwarding here, truck brokering, we've got it there. Transportation is also sitting there. Ships agency business, alongside the key. The logistics, as I indicated earlier on, containers in particular, was impacted by lower throughput through our container depot business. The structural organization or reorganization of our rail business. As you know, our rail business was a combination of the joint ventures and owned rail businesses. For us to be able to implement our rail strategy unhindered, we had to review our structure, and as of early April.
Yeah.
Our first part of this year, we run the rail business 100% as Grindrod. We are now able to implement what we're looking to implement and we're positioning ourselves for all the SADC and East Africa rail opportunities. As I've indicated earlier, 13 locomotives are coming back, and I'm sure our PR will be making some bit of noise on that. Richards Bay container handling facility bid, you've seen the announcement on that. I think the next time I'm gonna be talking about this, hopefully, will be when we implement the project. We've got a deadline of 2027, as you know, all of this is dependent on the process that we're currently embarking on, which includes negotiations, the finalization of the facility, how it's gonna look, the operational design, all of those things.
Also the understanding of how the quayside is going to be operated, whether it's going to be a dedicated quayside and how you integrate that container terminal facility with Durban and Joburg. So there's some bit of work to be done there in order to make sure that that facility delivers the goods. Thank you. Fathima.
Thank you, Xolani. Good morning, everybody, and welcome from my side. It's really a pleasure this morning to report to you on, I think Grindrod's resilient performance in the first half of this financial year. On the screen, you'll obviously have a look at our segmental income statement. We say segmental because, again, this income statement includes the impact of all our joint ventures proportionately on a line-by-line basis, which is quite important to distinguish. You'll see that our revenue, slight dip there, 1% period on period. There's a bit of a complexity that I need to spend some time on. If you recall, in the prior period, we reported quite healthy revenue, ZAR 580 million from our value-added services initiative. We explained that that was an initiative spearheaded for Grindrod to maximize on margin and on earnings in the strong coal cycle.
As Xolani explained earlier, the cycle has come off, and we sit with close to no earnings from value-added services in this reporting period. Value-added services used to be reported upon in terms of our group segment. What's come back and help us preserve our revenue line, though, is Xolani's talked about port-to-port solutions, both in March and previously. We're really seeing the benefits of this coming through. What it's done in the mechanics of how we earn our revenue is that our cross-border transportation has increased quite significantly. Now, cross-border transportation, that sits in our logistics segment, and the nature of that revenue happens at fairly low margins because the purpose of it is really to try and fill our facilities and our infrastructure and maximize on terminal handling capacities.
What you'll then see is that the impact of that means that at an EBITDA margin level, we have seen it come off from 30% in the prior year to 28% in this year. Again, managed quite strictly from a cost containment perspective as well within our various businesses. Non-trading items, you'll see that we're reporting a profit of ZAR 17 million, ZAR 14 million of that came out of our divestment in our rail JV, which was part of the structural reorganization that Xolani talked about earlier. Our net interest expense has gone up, and really there are two principal reasons for this. We are sitting with ZAR 1.1 billion of ring-fenced funds, and in the prior period, all of those funds sat in South Africa, which means they earned yields linked to the South African prime rate.
We had managed to move approximately 40% of that cash offshore. We were earning interest yields linked to the SOFR. That's really impacted some of our interest income coming off. The main driver, again, is coming off the back of the significant debt taken on our capital expenditure last year. Our interest expense has increased period on period. We're talking ZAR 164 million versus ZAR 210 million interest expense in this period. Xolani's talked to the beauty of diversification within our ports and terminals. The magic for us really happens in the share of associate line item, where you're seeing a 63% improvement period on period. That is the port earnings. That is the 18% volume increase that has leveraged for us in our associate line.
Our effective tax rate on our segmental income statement, you've got to look at this before the associate accounted income. We're sitting at 3%, which is quite a reasonable rate for us, considering the nature and the different mix of our businesses in the respective jurisdictions. Our earnings profile for this period in the core business, ZAR 566 million, which is 9% improvement on the previous period. From a headline earnings perspective, we're looking at ZAR 562 million, which translates to ZAR 0.84 for our shareholders. Again, fairly flat profile period on period. I think important to note that if you normalize our core headline earnings for the impact of our VAS business last year, as well as some of the charter earnings that we had, we're actually sitting with 8% uplift and improvement on core headline earnings. If we spend some time, or maybe I should talk to non-core.
You'll see in our non-core business, we're reporting a net loss of ZAR 80 million. That is a function of earnings from the marine fuel business coming off. Marine fuels is reporting earnings at a trajectory of 50% up to what they reported last year. Again, largely as a consequence of a softening of the oil prices. In private equity, effectively driving that loss, we've booked ZAR 56 million of fair value losses on the land portfolio and the private equity portfolio. We've also booked certain warranty provisions of ZAR 24 million impacting non-core. Overall earnings for the group, consistent with our core business, 9% up period on period. Our segmental KPIs, ports and terminals, we're seeing revenue uplift of 2%.
You can see that our margins are under pressure, again, this is coming off our Grindrod owned terminals, where we saw that our volume came off 6% period on period. Again, that coupled with the inclement weather conditions that Xolani talked to earlier, impacted the trend that you're seeing from an EBITDA margin perspective. We managed to preserve the headline earnings, like I explained earlier, because of the associate accounted income from the port. Strong volumes in South Africa, you can see with our ports and terminals business being average of 90% concentrated in U.S. dollar markets and U.S. dollar base, it's difficult to see that volume uplift coming through properly within the terminal KPIs. From a logistics segment, you see the 33% spike in revenue, again, for the dynamic that I explained around cross-border transportation.
Again, very strong earnings coming through from our ships agency and clearing and forwarding businesses. Again, the challenges faced by our container business coming in there as well and really that's driving the EBITDA coming off. Again, headline earnings preserved, and we're looking at a 3% increase. Both segments for us still reflecting very strong return on equity, trending nicely above the 16% that we target as a business. From a balance sheet perspective, the trend continues. We've spent significantly on capital expenditure in this period, ZAR 460 million to be exact. 69% of that is expansionary capital expenditure. Effectively, we've spent that in the logistics segment, both in properties that we've bought relating to our container landside business, as well as spend in rail for rolling stock that we've got on order or on refurb programs.
Of this, on the balance sheet, you'll see ZAR 340 million of that capital expenditure driving into the fixed asset line. Again, that's offset with the depreciation impacts of the ZAR 380 million we saw on the income statement just now. Also, that's driving the increase in our current assets because ZAR 120 million of that spend on locomotives and wagons are progress payments. Like I said, we're still waiting to take delivery on certain of those assets. Then, of course, that capital spend driving the increase in our interest-bearing borrowings from ZAR 4 billion last year to close onto ZAR 4.2 billion this period. From a non-core perspective, not much to report. You can see that our property portfolio now sitting at ZAR 981 million in terms of our advances.
Again, the private equity portfolio down to just ZAR 43 million, which is essentially the MTN, Footies, Aquila shares that we have, together with the associated debt of ZAR 127 million. Overall, our balance sheet, if you look at the equity of ZAR 10 billion after excluding the ZAR 740 million relating to our preference shareholders, we are looking at a net asset value of ZAR 13.84, nicely up from December, of which ZAR 11.48 relates to our core business. I think we're certainly encouraged by the fact that we're seeing our share price trading at a premium to the net asset value that I just described. If we have to look at our net debt reconciliation, quite important for us. We started the period with net debt of ZAR 1.2 billion. Cash flows that we've generated from our operations and our operating activities in this period of ZAR 425 million.
Xolani mentioned earlier that that's a 13% uplift from the previous period, I think important to note as well that it represents an 88% cash conversion ratio on the back of our headline earnings for the group. We spent a lot of that money, also within operating activities on our interest, dividends, and taxation. The remainder of the move in our net debt relates to the capital expenditure we've done, taking on ZAR 350 million worth of spend. Then increase in liabilities for, we call it non-cash, because it's debt we took on as a consequence of installment sale arrangements, as well as modifications that we have to put through on the lease liabilities that we have. We close our net debt at ZAR 1.6 billion, representing a ZAR 401 million increase for the six-month period. Where does that come from? Total debt up ZAR 277 million.
That again talks to the capital expenditure like I explained. Again, operating cash flows, we saw those come off by ZAR 124 million in this period. Our net debt-to-equity ratio sitting very firmly at 16%. As the business, because our net debt to EBITDA is a lot stricter than what we see in net debt to equity, certainly with our covenants with our banks, we look at our debt capacity in relation to that, and we're seeing strong capacity in there in excess of ZAR 2 billion. Our approved capital expenditure pipeline, as we stand here today, Xolani and I, is sitting at ZAR 2.4 billion. There are absolute plans on how we spend both the ring-fenced cash and the capacity that we have. I think from my perspective, those are absolutely the key financial performance measures that I wanted to talk to and highlight.
Xolani will now talk us through what the business outlook looks like.
Thank you. Thanks, Fathima. Where to from here, how do we see the next 12 months or next short to medium term? Perhaps before I dive into that, I know we might get a question on land, given the developments on the Club Med. All I can say is that we remain cautiously optimistic in resolving the land. Again, we've got an exposure of ZAR 1 billion, or just less than ZAR 1 billion, and we are strongly hopeful. Hopefully I've avoided the question. Then, if you are gonna ask about Cockett, it continues. We have regular meetings with the core shareholders in terms of where to with that asset. The beauty of it is that if the oil price is high, we make more margins. If the oil price is low, we push volumes to sustain our profitability on that business.
It continues to run nicely. Looking ahead, I'm slightly concerned with the market environment, particularly commodities. If you look at China, there is a bit of a glut on the iron ore. We expect some iron ore coming out of West Africa to increase, there's a Simandou project that's being talked about that could potentially, in the next three years, result in volume of iron ore coming into the markets. The pressure in China in terms of the steel demand is not showing signs of strength unless the government intervenes. Of course, that will have an impact in terms of volume uptake on our magnetite. European demand on energy has slowed down, you're not likely to see much of coal going into Europe like you used to. You also see coal going into India, and some of the other countries that continue to burn coal.
The reliance on coal is not quite there, we need to seriously look at the other commodity types to introduce diversification. As you'd have seen, we are seeing the margins tapering off. We have to be cost-conscious, no frills. That's the name of the game if we want to sustain our margins going forward. The third element is that, yes, we've got a book of over ZAR 2 billion in CapEx and M&A possibly. Those have to be strictly quality projects and M&A that can give us cash from day one. We're quite strict on capital allocation to make sure that when we do those acquisitions or when we implement the project development, we get to the EBITDA number within a short space of time and the payback that is relatively short. Anything that's longer will be delayed.
We're going to focus our CapEx on two components of our business, which is terminals and rail. We also now are focusing on technology. We firmly believe that what Maputo Port are doing in terms of, as an example, ensuring cargo visualization for the customer, introducing technology within the port to drive performance on the trains' turnaround, we think that is key to sustaining Maputo Corridor in particular. We're supported from our end as well to make sure that we do that. In fact, the integration of their system into CFM system has also been extended to our terminals. Overall, we'll be optimizing our operations, make sure they're fit for purpose. Our infrastructure investment will focus on high growth areas in order to be able to achieve your shareholder returns and be able to pay sustainable dividends going forward.
We have come to an end of our presentation, we are available to take questions. Yes.
Hi, Cobus from All Weather Capital. Thanks for taking the question. Actually, I have three. Just starting off with the EBITDA margins on the ports and terminals side. Being at 28% now, given the variety of different projects that you guys have got underway, what's the longer-term targeted EBITDA margin for that segment? Do you want me to ask after you answer, or?
Our preference is we aim for between 30% and 35%. We know when there's booms on that range, it shifts slightly between 30% and 40%. In difficult times when your core price drops significantly, it will be between 25% and 30%. I don't want to make it a broad range of 30% and 40% because it might not make sense. If you look at the basket of commodities that we move, and then use that to then work out what does it mean for the terminal, we'll probably get to the answer. But on the upside, we look at 35%- 40%. On the normal, it's 30%- 35%, and on the downside, it's less than that.
Okay, perfect. Then just focusing on your debt. ZAR 1.6 billion at the end of June, excluding the ring-fence of ZAR 1.1 billion.
Correct.
The CapEx bill of ZAR 2.4 billion. Theoretically, ZAR 1.3 billion will be financed because the ZAR 1.1 billion is ring-fenced.
Correct.
If I include the non-core NAV, which is in the region of ZAR 1.4 billion, the actual, if that gets translated into cash, the net debt is still very low for business that's in the infrastructure space. Can you just maybe comment on that?
Yeah. Can I answer that?
Yeah, absolutely.
If you look at non-core, that's why you focus on core, because if you look at non-core, what does it contain? It contains equity on the marine fuel business.
I would be reluctant to see that as a sustainable Not that it's not sustainable, but if I'm going to take debt, my preference is to ignore that until I realize it in some form or shape. If you look at the property on the ZAR 1 billion, certainly, some work requires to be done. Therefore, if you're going to raise funding on the back of that NAV, you may have to make some assumptions. Therefore, maybe the best option would be to say, let's ring-fence that in determination of the level of debt that you require. When we engage the banks on debt funding, we tend to extract those, because the non-core are not a sustainable part of the business. There was another item you mentioned. Those are the two non-core assets.
Yeah, I just wanted to get the idea of what the ideal gearing ratio or net debt to EBITDA for an infrastructure company such as yourself?
Yeah. What you normally do, we've got a target of 75, 25.
Yeah.
Which translates to about.
46
46% debt.
Yeah.
We normally do, we then take that and relate it to EBITDA. Because if you say you can raise a 46% debt, your 2.5x cover on EBITDA can only give you ZAR 2 billion, you can only raise ZAR 2 billion. That, to me, is what determines the extent to which we can expose our balance sheet. Unless, of course, we go to the market to rebalance it with capital raise if there are significant projects.
Your balance sheet has got a lot of capacity, so I don't think that's likely. Just last thing on the Sierra Leone, 13 locos that you've repatriated, got back. Just the uplift with regard to the maybe EBITDA, or can you just guide us? Because obviously you've got it back because there's significant opportunities within the South African space. Can you maybe just guide us with what you expect, maybe the uplift from deploying those locos 100% in the rail segment.
Cobus, those locos are sitting at fairly low carrying values in our books, and we'll be looking to spend, the check size at the moment is just under ZAR 60 million to get all the refurbishments done. The timeline for that is looking at between quarter three this year and quarter one next year. With that in mind, we're probably only going to see plausible uplift starting for us in the 2025 year. Those locomotives, when deployed in Sierra Leone, and those were not at the healthy rates that we think we can earn from a leasing arrangement, we would be reporting anywhere between ZAR 30 million of earnings in a respective quarter. The uplift is significant for us in rail.
ZAR 30 million per quarter.
Yeah.
Thank you.
The minimum IRR that we chase for is 18%.
Correct.
Hi, guys. Keith McLachlan, Integral Asset Management. In terms of the VAS side of the business, and it did really well when commodity prices were running, and it made sense to participate in terms of that, but you're seeing the other side of the coin now. There are lessons on the back end here. Does this remain conceptually a part of the strategy going forward? If it does, what are the lessons? Will you approach the value-added services side slightly differently? Is there floor pricing in and things like that? On the downside, as an infrastructure business, should there not be more focus on volume and less focus on spot? Is this still a core part of the strategy? Really just zooming into that part of the business.
Yeah. That's a very excellent question. We've done VAS probably twice, at least, in my employment in Grindrod. If you recall, we did one on magnetite, and we made good money. Then when coal came in, we made money. It's an opportunistic position that we take in the market as a terminal operator. Whether you announce that as a strategy or not, one just needs to be very careful as a terminal operator in terms of how it affects your relationship with your customers who are traders, and it's their core business. One always has to be mindful in terms of how you pronounce on that. Focus on volume is our core business. There are creative pricing structure without disclosing much, because I can't say much without disclosing much in terms of contractual arrangement with customers.
There are creative commercial contracting regime that allows us, we used to call them CPP, commodity price participation, which then allows us as a terminal operator to participate in times of good earnings, because what then happens in that environment, your space for the terminal, in terms of demand, becomes gold. Now, if you've got a customer contracted for X number of years, it means you just watch the movie. If you are creative around how you structure it, together with customer in the form of partnership, one continues to sustain itself. While VAS, in its concept, is opportunistic, there are sustainable way that don't compromise our volume, that allows us, to an extent, to participate. I hope it answers your question. Any other questions? Thank you for coming today.
Sorry, we just want to check, Lani, are there any questions from the callers?
Thank you, there's no questions from the lines.
Okay .
I'll do the online ones now, Sam. We've got four questions online. Adam from Allocated Capital asked, "Can we explain why revenue is flat even with such great performance?" Adam, I think I explained when talking through the income statement that we really see the uplift coming through from the port earnings through the equity accounted income from associates. The second question, "There are reports that BBR has signed a third-party access deal with the National Railways of Zimbabwe. Can you provide details on what that entails? What are you investing in that arrangement, and what are the target commodities and expected volumes?
If I can pick up on that one. The involvement with BBR is with the government of Zimbabwe as well as the other two private equity players. We jointly own BBR, and BBR is a long-standing concession on the North-South Corridor, and that expires before 2030.
I'll do the next question from Boitamelo. There are three parts to the question. The first, "Please, can you spend some time to discuss the weaker terminal volumes as opposed to the very strong Maputo volumes? Which terminals were the weakest over the period?" I think this was explained by Xolani when he talked through the type of commodities handled by the Grindrod dry bulk terminals, which, if you think about the commodity price chart, the trend on all of those were that we were seeing a trend, to be specific, we quoted it at 20% going back period on period. The port handles chrome and ferrochrome, and if you looked at the resilience that came through in the pricing of those commodities, that's what allowed for the port to have resilience compared to the Grindrod dry bulk terminals. I hope that explains that question.
Maybe to just add on that, the volume in GML were low. If you look at the schedule at the back of the presentation and you get an opportunity, you'll see the commodity mix and which terminal performed. GML did not perform as well as we would like. We saw the TCM was at 4.1 versus 4.2, it sustains itself. You'll see the port volumes, I think we talked about 18% growth. If you look at the portfolio of assets, you can actually see which terminal did not perform as we would have liked.
The second part of the question, "Please, can you unpack the change in the rail business management and how we'll see the impact or change in the segmental income statement for logistics.
It's early days. I'd like to see rail as a separate segment. I think it sounds like I've talked about this before. I think I mentioned the ZAR 100 million number. I'll be guided by our accountants at what stage it becomes its own segment. We've just come out of a restructure, as I've said earlier. We had a mirror structure, which had JVs and own assets within the rail business. What we've done now is we've actually reconfigured the rail business so that the remaining assets are now 100% run by Grindrod. We've employed the CEO, whom I introduced, I think last year. Yeah, Johny Smith is here. He's ex-CEO of TransNamib. He will be driving the rail strategy for us, supported by his team. He's putting a structure going forward that will work.
Our rail business has got a main hub in Pretoria and various hubs, in Zimbabwe. We're setting one in Beira, and we're gonna be setting one in Maputo, and we've got a hub in the Northern Cape, and that's how we are set up. The hope then is that when the opportunities come, we're able to secure funding for rolling stock, we are in a position to launch ourselves. The key components of the rail business for us is assets and commercial in-ops, which is then supported by the various services coming from the functions.
Third part of the question. With regard to the Richards Bay container handling terminal, is the 2027 deadline the anticipated start of operations?
Huh?
They're asking about the start date for Richards Bay Container Terminal. I think the thinking at the moment, certainly from a Grindrod perspective, is that we'd want to get this working as soon as possible. At the moment, we're in deep stages of the process with Transnet to iron out what the leasing arrangements would look like, defining what the CapEx requirements would look like, and essentially the business model for the terminal. If we can get this to work earlier, we'll certainly push for that. The current timeline is a 2027 start. Errol asks, "There are potentially huge projects and JVs to invest in SA Rail. What is your appetite for really large projects, say ZAR 10 billion plus? Do you believe that you could raise equity to finance large projects?
I always say the true test of a good project is the ability to project finance it without using your balance sheet, and/or the ability to get support from shareholders, then you know you're running a good project. To answer the question is, can we take on the ZAR 10 billion? Yes, we'll evaluate it. At ZAR 10 billion, you can clearly see that our balance sheet on its own cannot handle that. We are a market cap of ZAR 11 billion. It would require that the project is good quality. What is a good quality project? Is the one that's underpinned by long-term access or concession or I want to use the correct words here. Also underpinned by good customer contracts in the long term.
Good customer contract means the life of mine, if it's a mineral, is a long-term life of mine that can back up that contract. A good contract on its own, without an underpin from a life of mine that matches that, is not necessarily a good contract. I think if you've got those qualities in your project, it would be easy to approach the banks or the funders or the shareholders to support it. In that instance, we would look into it.
Another rail question from Shaw. "Please can you provide an update on how you see Grindrod's involvement in SA private rail access is likely to play out over the medium term, particularly the interplay between large binary main corridor concessions and the provision of rail and logistics services to private companies or miners.
Yeah. It's quite a hectic question. I think maybe the best way to answer the question is how do we see this plays out, and how do we see Grindrod play into these rail opportunities? I think that's the crux of the question as I understand it. If I'm not answering it correctly, I'm happy to take it offline. We're encouraged with the developments that we are seeing. I think most of us have been on a journey from when it started right up to now. I'm talking rail specifically. As you know, Grindrod has strategic terminals, and has customer base. The key thing is how do we link the two. How do we link the two in recognition that the rail as it exists has got rail authorities.
I think the mistake sometimes that we do is we say, "Well, I've got a terminal, I've got a customer, and I don't need anyone." I don't think that's the right spirit. The right spirit is the one that says, as stakeholders in this rail business, how do we create efficiencies, and how do you ensure that the corridor is cost-effective so that it creates value for the key stakeholders. We would then be in a position to create value for our shareholders on the terminal side. That's the beauty of having a Grindrod as a rail stakeholder, in that we would not necessarily be aggressive in the margins, if I can put it that way.
As long as we are able to create good value in our terminal, and we expand the terminal, and we fill it more, and we achieve the 30%-40% EBITDA margin, it makes sense. Whereas if you are an only rail operator, you want to maximize on the corridor, your other stakeholders may not necessarily be happy with you, including the customers. That's the competitive advantage that we have in this play. Now, we then need to look at where we operate to make a call in terms of which corridors then make sense for Grindrod, it gets to the right answer. I think I've covered it.
Naledi asks, "How are you holding up at the Cape Town port? With the CapEx spend guided, when do you expect to sort of recoup that investment?
Cape Town port.
Naledi, I'm not quite following. We don't really have significant dry bulk or bulk operations in Cape Town. We have a sizable footprint in the container business, both within our JV and our UCD container depot business. We also have presence in our Hesper Engineering business through the engineering work that we do on ships that come through. Maybe a bit more context to that question. Currently, I'm not sure. We've never ring-fenced sizable, let's call it dry bulk or port CapEx, for Cape Town. Matt asks, "Could you give the guidance on H2 EBITDA margins for the port division, please?
Can you give us guidance on the container terminal?" Matt, I think we've given that on the container terminal for Richards Bay, Xolani's talked through in the depressed cycle how we look to try and chase an EBITDA range of between 30%-35% for ports. How much did weather in Mozambique impact volumes in H1? I think that's a difficult question to answer.
We might have been able to handle an additional vessel, which would have boosted the volumes, and most probably resulted in slightly better EBITDA margin. It is a difficult one to respond going back.
Maybe to add on that question on the weather events. You'd have seen the TCM numbers, 4.1 versus 4.2. There is that element of reduction in volume. That's number one. Number two, how it affected our EBITDA margin is that those rains were very abnormal this year. We had our terminal flooded. Some of customer's cargo was submerged, a portion thereof. There were additional costs of pumping out the water, and that's why one of the key projects would be to work on the drainage of Matola. That's the second element that impacted our EBITDA margin, even though the volumes may seem to have been somewhat constant. Operationally, we then deferred the normal shut, which normally takes place in June, and we deferred that to the second half of the year. You will see some impact of that.
That's why if you look at the volume, it has not been materially impacted. One could argue that actually the 4.1 should have been a higher number than what it was, had it not been. If you take a combination of the fact that we deferred the shutdown, and if we didn't have the flooding, we probably would have achieved higher volumes.
I hope that answers the question.
Second last question from Wallace. Is there further magnetite volume upside on the customer's expansion plans?
That's an interesting question. If you go to Palabora, you know you've got mined magnetite. There is a little bit of processing on it if you want to upgrade the Fe content on it. You end up with about 3 grades, which is iron ox, your normal one, and your premium product. That's got a lifespan. We are getting few inquiries. The expectation when we were doing the project was that we're gonna get between 8 million-9 million tons of iron ore demand annually, of course, subject to price, which we then leave only a portion of that for coal if we expand to 12 million tons. We are expecting, at least in the medium term, that there will be sustained magnetite flows coming through.
What we then are doing is we are engaging MPDC to make sure that we start talking different cargo types that can be handled at our terminals in Maputo, that requires a careful discussion. Thank you.
Xolani, last question. You sound a bit more optimistic on the realization of the Kaserne land than before. Could you elaborate on why? I think Wallace is reaching here.
I'm sorry that I did. I think we've got a serious problem with land. I'm unable to work out whether we're gonna realize that value or not. It's a vast land. It's not our core competency. We're hoping that with the interest in Club Med, we've seen that work has started, we are noting that some of the funders are keen to get stuck in. We're hoping that a combination of that interest in that specific project, together with peripheral development around it, will create an interest overall on the land. That's the logic. Before Club Med started, it was theoretical. Club Med has started now. It's still theoretical, at least Club Med is there.
The question now is whether we are starting to see the interest in there. That's the only hope I have. I hope it doesn't demonstrate any more confidence than that. Thank you.
We're done.
All right.
Yeah.
Thank you.