State-owned South African transport group Transnet has reported an interim pre-tax profit for the six months to the end of September of R774-million, resulting from a 5,3% rise in turnover to R22,4-billion, after posting a loss of R1,06-billion in the year-earlier period.
Reporting its interim results on Wednesday, Transnet said the turnover figure excludes notional revenue relating to derivative contracts. Operating profit, meanwhile, totalled R3,2-billion, up from R1,98-billion a year earlier.
After tax and minority interests, Transnet posted a loss for the period of R1-million, representing a significant improvement over the loss of R1,08-billion recorded a year earlier and the R6,33-billion loss incurred for the year to the end of March 2004.
Had it not been for a sharp rise in taxes to R796-million from R12-million a year earlier — due to deferred tax assets not being recognised in loss-making entities — Transnet would have posted an overall profit for the six months.
The group’s results were dented by the adverse net effect of derivative fair value adjustments relating to embedded derivative in iron-ore contracts, which totalled a negative R750-million.
Operating costs rose only 1,3% over the period, which had been achieved in part by cost management and lower energy consumption. The group’s failure to spend its budgeted amounts for maintenance and new infrastructure is currently being addressed.
Outlining the progress made on strategic issues as detailed in its four-point turnaround plan announced in August 2004, group CEO Maria Ramos said that, in restructuring the Transnet balance sheet, the group has unwound South African Airways (SAA) hedges amounting to R5,9-billion, completed early settlement on a €105-million loan and redeemed coupon stock totalling R3,3-billion.
Negotiations to replace the current contract containing the embedded derivative are under way, she added, and are expected to be concluded by the end of March 2005. There has been progress on closing and/or disposing of loss-making and non-core businesses, as well as significant interventions to improve returns at SAA and Spoornet.
Transnet has also implemented group risk-management strategies and established structures to enhance its corporate governance.
‘Some way to go’
Commenting on the group’s performance and outlook, Ramos said: “Although the results for the first six months of the financial year show progress, they also show that Transnet still has some way to go in achieving a sustainable turnaround in the business.
“However, initial steps have been taken to deliver on our four-point turnaround plan of returning profitability to acceptable levels and ensuring the group is set on the right path for recovery.
“Although the balance sheet remains an area of concern, substantial restructuring has been achieved, particularly through the unwinding of the SAA hedges. A number of interventions are being implemented to improve returns across the group with a particular focus on SAA and Spoornet.
“Furthermore, a risk-management framework is being developed for the group.
“Looking forward, Transnet faces significant challenges, including increased competition, aged infrastructure, inefficiencies in certain core operations and high gearing. Profitability will remain under pressure but is expected to materially exceed that of the prior year.
“The board of directors and the group’s executive team remain committed to creating an efficient freight transport group that focuses on our core expertise in port, rail and pipelines.”
Net cash outflow from operating activities totalled R1,4-billion, compared with an inflow of R1,17-billion a year earlier, but cash at period-end rose to R1,18-billion versus R674-million. — I-Net Bridge