Transnet on profits track as freight volumes increase

Johannesburg - Despite tough economic conditions, state-owned freight and logistics company Transnet managed to increase its revenue by 5.3% to R65.5bn, the company announced on Monday.

Transnet released its financial results for the year to end-March and CEO Siyabonga Gama was upbeat, despite the shadow of corruption allegations that hung over the parastatal.

The CEO said Transnet "has outperformed all players in our sector” and was looking north to expand its operations. 

He said despite the difficult economic climate, Transnet had managed to grow its market share, with its key measure of profitability, Ebitda, increased by 5% to R27.6bn.

The state enterprise also announced it recovered an after-tax profit of R2.8bn this year, after last year’s profits dipped with R5bn from 2015.

Revenue grew 5.3% to R65.5bn, largely due to the growth in volumes in general freight.

Gama said discretionary spending had a big role to play in boosting profits in a tight economy.  Also operational efficiency had improved by 14.9%.

But the increase in revenue was dampened by price reprieves in excess of R600m to strained customers, trying to survive in the constrained economy. Gama said this was done to ensure that these businesses could survive the tough times. 

Increase in volumes

Volumes in general freight increased 4.9%.

“The volumes growth is a firm indication of the company’s progress in gaining rail market share, while continuously improving operational efficiency through the deployment of new generation locomotives and technological interventions,” said Gama.

Volumes of coal was up 2.4%, manganese volumes rose 17.5% and automotives also grew with 24.3%. Transnet moved a record 12.1mt in manganese volumes, from the 10.3mt last year.

But iron ore volumes fell 1.5%, affected by lower demand and equipment failure at the ports, Transnet said.  

Cash generation

Cash generated by operations after working capital changes rose 16.4% to R32.8bn, reflecting Transnet’ strong cash generating capability.

This fed the security of the company’s ability to service debt, said Gama. He added that a well defined and diversified funding strategy  enabled Transnet to raise R17bn for the year without government guarantees.

“Transnet has not tapped into government guarantees since 1998,” he said.

Credit ratings

In April Standard & Poor's cut Transnet’s investment grade, but Gama said this was in line with downgrades of South Africa’s sovereign credit rating.

“Transnet is closely linked to the government. Standard & Poor's however maintained Transnet’s standalone credit profile at BBB, reflecting the company’s strong financial metrics and its executes its multi-billion rand infrastructure investment programme."

The going in bond markets has been tougher as a result of the downgrade, but Gama said the company was not desperate for funds.

“We have adequate liquidity,” he said.

Transnet raised R17bn in non-government-guaranteed debt in the 2017 financial year, and repaid debt of R24.9bn.

Spending for the future

Transnet continued with its vast infrastructure investment programme during the last year, spending R21.4bn, taking total investment under the Marked Demand Strategy to R145bn in the past five years.

The company still expects to spend a further R229.2bn in the years leading to 2024.

Gama said that the procurement of locomotives to modernise Transnet’s fleet is to adapt to the anticipated further growth of freight volumes in the coming years. He said 1 319 locomotives will be acquired in total.

So far Transnet has accepted 452 locomotives from manufacturers.

Transnet is also busy with its seven-year market demand strategy, a planned R300bn capital expenditure programme aimed at modernising infrastructure and shifting freight from road to rail.

Gama said its expansion plans into Africa was going well with two multi-billion deals in Nigeria and Kenya recently concluded. It was planning further ventures into the Middle East and south Asia, Gama said.

Also, its transformation to a digital centred logistics company was in full swing.