Transport parastatal Transnet on Tuesday reported a massive 57% jump in profits from continuing operations to R8,5-billion for the year ended in March 2006.
This represented an increase of R3,1-billion — achieved on the back of a 7% growth in revenue to R26,3-billion.
These are the first full-year results to be prepared following the adoption of the International Financial Reporting Standards (IFRS) by Transnet. Transnet is also reporting, for the first time, the outcome of its transformation, accounting separately for the businesses it is disposing.
Operating margins from continuing operations powered ahead 47% to 32,2%.
Operating expenses dropped 9,9% to R17,9-billion helped by the drive on cost reduction and efficiency improvement, including a significant reduction of R421-million in post-retirement benefit cost.
Commenting on the results, group chief executive Maria Ramos said: ”The turnaround seen in the prior year has gained momentum in the current year with all major divisions improving volume growth and operating margins. The growth in revenue, despite below-inflation rate increases in tariffs, demonstrates that the improvement is as a result of moving greater than 3% freight volumes. And most importantly, the improvement shows that Transnet is inching closer to fulfilling its mandate from government — our shareholder — to demonstrably cut the cost of doing business in South Africa.
”This impressive set of results confirms that the four-point turnaround strategy we are implementing is working; that we have the right team leading the business; and, that the corporate strategy of focusing on ports, freight rail and pipeline businesses is the correct one.”
Transnet’s capital base grew 31% to R27,7-billion as a result of the net profit after taxation and the net actuarial gains recognised directly in reserves. This provides a solid equity base for the funding of the demanding capital investment programme.
Cash generated from operations increased by 28% to R11,2-billion (after deducting the cash flows from South African Airways in order to provide a better comparison) and reflects Transnet’s strong cash generating ability.
As a consequence of the increased capital base, the strong cash flow and the disclosure of the borrowings in assets held-for-sale separately, gearing at 47% showed a substantial improvement over the prior year’s 62%.
Transnet has unused borrowing facilities of R34-billion and is, according to Ramos, well placed for the funding of its commitments.
”We are pleased that the progress made in implementing the strategy is increasingly freeing the executive to concentrate on the most important tasks in sustaining the turnaround: namely, operational efficiency; market share increase; safety; maintenance; and, most importantly, our people. This should translate into a more reliable service for our customers and a better safety performance in our operations,” said Transnet chairperson Fred Phaswana.
He added: ”On the strength of this continuing robust performance we are confident that the turnaround strategy provides the foundation for a long-term, sustainable and profitable growth path”.
Significant strides have also been made in transforming Transnet into an efficient freight transport company by exiting from non-core operations. Transnet sold approximately 82-million shares at about R60 per share in cellphone group MTN held by Transnet and the M-Cell Trust (on behalf of one of Transnet’s pension funds).
Crucially, Transnet has concluded the share sale agreement with the Department of Public Enterprises for the transfer of SAA to the DPE as a standalone state-owned enterprise with effect from end-March 2006. Transnet will oversee the transfer of the airline over the next few months until the fulfilment of certain suspensive conditions.
A sale agreement in December 2005 to facilitate the smooth transfer of Metrorail over to the South African Rail Commuter Corporation was signed, paving the way for the transfer of employees to the SARCC in May 2006.
In addition, Transnet has accepted an offer from the second network operator for certain telecommunication assets of Transtel.
The trade sale process for the V&A Waterfront Holdings is under way. So is the call for bids for freightdynamics as well as Viamax Holdings.
Capital expenditure plans for the continuing businesses — also referred to as core business units — over the next five years amount to R64,5-billion. These mainly relate to the upgrade and expansion of rail, pipeline and port facilities. Capital commitments will be financed by the cash from operations together with borrowings. ”All these projects will be based on earning returns greater than our cost of capital,” Ramos said.
During the review period, capital expenditure amounted to more than R6,6-billion, an increase of about R1-billion on the comparable period a year earlier. As part of this, a deposit was paid in terms of a contract to acquire 110 locomotives for Spoornet — the first acquisition of locomotives in many years.
The progressive rollout of Transnet’s four-point turnaround and the recently launched re-engineering programme should deliver significant benefits over the next three years, according to Ramos.
This major business re-engineering project, currently under way among core businesses, is aimed at improving customer service, safety, productivity and building capacity, optimising asset utilisation and increasing profitability.
”The challenge ahead now is to ensure that we sustain the performance so that Transnet delivers a reliable service to all its customers; an acceptable economic return to its shareholder; and is a sustainable and a choice employer,” said Ramos.
”In the coming year, we will also be investing heavily in ensuring that Transnet has the appropriate skills to support Transnet’s strategy going forward particularly the major capital programme,” she said. – I-Net Bridge