South African transport utility Transnet on Tuesday reported a 15% increase in operating profit to R10,7-billion in the year ended March.
Revenues grew by 8% to R28,2-billion, fuelled by strong volume growth across most of the company’s operating divisions.
Earnings before interest, tax, depreciation and amortisation grew 12% to R11,5-billion.
Transnet’s continued focus on cash flow is evident in the 20% increase in cash flows generated from operations to R13,5-billion.
Costs grew moderately by 6% — below the level at which revenues increased — confirming the efficacy of the cost-containment efforts and productivity improvements, the group said.
Excepting once-off items such as ex-gratia payments to pensioners and certain project provisions, operating costs would have only reflected a 3,8% increase.
For the second consecutive year all Transnet’s operating divisions, except for Spoornet, the company’s rail-freight division, delivered revenue increases based on growth in volumes.
This is in line both with the strategy as well as with Transnet’s mandate to enable economic growth through helping make the South African freight-transport and logistics system more competitive.
This is the third set of robust financial results by the company since it began implementing its four point turnaround strategy.
Unveiling the results, group chief executive Maria Ramos said: “It is really heartening to report that the determined application of our approved strategy is continuing to reflect in our financial results. The successful bedding down of the turnaround is clear.
“We have created a platform for growth and the challenge now is to concentrate on adding capacity through our capital investment programme. We are now a focused freight-transport and logistics business.”
During the year Transnet successfully completed the disposal of some key non-core assets, signalling the end of its transformation from a diversified group to a focused freight and logistics business comprising five core operating divisions in rail freight, ports and pipelines.
The new Transnet is made up of operating divisions: Spoornet, Transwerk, the National Ports Authority, South African Port Operations and Petronet.
Most of the non-core assets, particularly the largest and complex ones, have been sold off. These include South African Airways, the V&A Waterfront, Metrorail, Equity Aviation, Transtel’s FSN, shares in MTN and Transnet Pension Fund Administrators and VAE Perway.
Sale processes for the remaining non-core assets — including South African Express Airways, Shosholoza Meyl, Autopax, the Blue Train, arivia.kom, freightdynamics and properties — have been launched. An agreement in principle has been reached with Bidvest for the sale Viamax for about R1-billion.
“We are in talks with the Department of Housing for the sale of 118 properties to the department’s Servcon. Negotiations for the disposal of freightdynamics are at an advanced stage,” she said.
Transnet Housing’s lending book has been sold to FirstRand for R1,4-billion rand in a transaction that will see employees continuing to receive preferential rates and expanded services.
And, significantly, post-balance sheet events included the acceptance by Transnet of an offer of R5,8-billion from the other shareholders for Transnet’s “C” class preference share in Newshelf 664, she noted.
This will generate substantial cash flows for the company, which will be used to fund Transnet’s R78-billion investment programme.
Ramos says the most positive aspects of the results included the volumes moved and handled — driving turnover growth — very healthy profits and, in particular, the continued improvements in cash flow.
“The most significant achievement, however, is the complete turnaround of our balance sheet. Our gearing levels have now reduced to 39%, an improvement of 15%, which means that we have significant borrowing capacity to finance future investments.”
The Transnet Second Defined Benefit Fund, which had a significant deficit in 2006 of R1,6-billion, is now in a large surplus position of about R1,9-billion and the assets have been invested more appropriately given the nature of the fund. In addition, the rules are in the process of being changed and these will bring about meaningful reforms.
The turnaround in the fund has been helped by the sale of its MTN shares and the V&A Waterfront as well as the involvement and leadership of Transnet.
Volumes at Spoornet were impacted negatively by customer operational problems, derailments and capacity constraints (such as wagons and locomotives).
However, Ramos said “we are optimistic that the re-engineering programme [targeting efficiency, profitability, safety and productivity improvements and the embedding of the maintenance culture among others] plus the planned capital expenditure programme will help address all the problems within Transnet’s control that are constraining volume growth at this operating division.”
Also, the planned exit of Shosholoza Meyl and the Blue Train is expected to free Spoornet’s management to concentrate on freight.
Signalling renewed resolve to tackle safety of operations, employees and customers’ cargo, Transnet has set up a risk committee of its board and Ramos has created a new position in her executive committee — that of chief risk officer — to give focus to safety.
Ramos expressed concern about the decline in the country’s export volumes in light of Transnet’s planned investment programme.
“We have an investment programme and we are committed to ensuring that we can meet the demand of all our customers. However, we do have concerns about the ability of industry to meet some of its volume forecasts, particularly the export sector. An efficient investment programme means we must ensure acceptable return on capital and assets. We’re not interested in investing in underutilised assets — unless we get a fair return on them.”
On the outlook for the business, she said: “Transnet’s turnaround has established a solid platform for growth. The company is now focused on more efficient use of its capital, resources and management’s time. We can now focus on adding capacity to deliver on growth and increased efficiency. With the support of our labour partners and our employees, the re-engineering programme — called Vulindlela — is bearing fruit and profitability is expected to increase further in the coming year.” — I-Net Bridge