South African transport utility Transnet on Monday reported operating profit of R3,1-billion for the six months ended September 30 — almost the same level as the corresponding period a year ago. Revenues were 8% up at R24,2-billion, while capital and reserves have surged 70% to R23,7-billion. All core business units improved their profitability.
The turnaround of Transnet, witnessed during the full-year results, is continuing, with the freight transport group showing solid performance in all its core divisions for the six months ended in September 2005, the group said in a statement. All the core business units have performed better than in the previous corresponding period.
However, the half-year performance was dampened by losses at South African Airways (SAA), whose performance was R618-million less than the profits recorded a year ago during the same period. SAA reported an operating loss of R240-million after an operating profit of R378-million a year ago.
SAA’s operating losses were the result of the employee strike, delayed introduction of new routes, lower passenger yields and higher fuel prices, Transnet said.
With the current trends in oil prices and the introduction of new routes, a better performance — albeit lower than the previous period — is expected in the second half of the financial year at the national airline. A plan to raise revenue and contain costs is also being implemented at SAA, it said.
Gearing for the group improved by 21% to 58%, showing that the company is on track to meeting its target of keeping this to around 50-55%.
Commenting on the results, Maria Ramos, Transnet group chief executive said: “We are satisfied with these results. They show that the platform built during the full year financials (to March 2005) is solid to sustain the positive performance going forward”.
“In the previous period our cash position was negatively affected by the large outflows to settle the hedge book at SAA at a cost of 6 billion rand. During the reporting period, cash from operating activities increased significantly to R2,7-billion.”
Operating costs for the period grew 9% to R21-billion driven by significantly higher energy costs at both SAA and Spoornet.
The results are the first to be reported using International Financial Reporting Standards (IFRS) after adoption by Transnet. This makes the group one of the leaders in the public sector to have voluntarily adopted the IFRS.
The principal impacts of IFRS adoption include the R4,3-billion increase in property, plant and equipment as a result of valuing primarily property at fair value and an additional charge of R135-million on the income statement for increased depreciation.
Fred Phaswana, the chairperson of the board, welcomed the results saying they confirm that the trend is a positive one. “We are on course to implementing our strategy.”
“The challenges for the executive are clear: we have to improve the quality of the business – spend the capital budget on maintenance, new business and on safety. We need to use safety as a barometer of our performance”, he said.
The group has launched a major reengineering programme as envisaged in its four-point turnaround plan. The programme focuses on meeting customer expansion needs, efficiency enhancements, unlocking synergies among core business units, productivity improvement, cost containment and improving safety.
“The benefits of the exercise, which are already evident, will be significant in the bottom line in the next two to three years”, Ramos said.
Ramos says the rate of the group’s capital expenditure programme is expected to be accelerated as the R40-billion investment plan is progressively implemented over the next five years.
“We have appointed very experienced people to ensure that the investment programme is implemented efficiently and effectively. More importantly, we want them to impart these skills to younger professionals at Transnet. The creation of the group capital projects office is designed to de-bottleneck the implementation of the capex,” she said.
Ramos said that safety has become an urgent priority both for the board and the group’s executive committee.
The board is expected to set up a new committee to deal with safety, signalling its growing concern at the issue which is gnawing away at the bottom line.
Considerable progress has been made in transforming the group into a focused owner and operator of freight rail, ports and pipeline businesses. Plans to exit from non-core assets – including SAA, Metrorail, V&A Waterfront Holdings, Transnet Housing, Shosholoza Meyl, freightdynamics, Autopax Passenger Services, Equity Aviation Services and Transnet Pension Fund Administrators – are proceeding well.
The refocus of the group is expected to significantly reduce its borrowing levels, Transnet said.- I-Net Bridge