/ 20 August 2018

Transnet records growth in profits despite axe hanging over CEO’s head

External auditors gave Transnet a qualified audit
External auditors gave Transnet a qualified audit, after irregular expenditure rose to R8.1-billion. (Delwyn Verasamy/M&G)

Transnet has reported a more than 75% increase in net profits to 4.9-billion this year, up from last year’s R2.8-billion. The state rail, port and pipeline agency also recorded a 11.3% increase in its revenue to R72.9-billion for 2017-2018.

Despite what chief executive Siyabonga Gama described as “the best results that Transnet has ever had”, external auditors gave Transnet a qualified audit, after irregular expenditure rose to R8.1-billion.

According to Transet’s annual report, the auditors’ report has implications for the agency’s going concern status as a qualified audit is deemed “an event of default” in many of Transnet’s financing agreements with its lenders.

Transnet’s independent auditors SizweNtsalubaGobodo said in their report on the company’s financials that: “The group relies significantly on its funders and therefore if the funders were to call up loans and facilities as a result of such breach, the impact on the Group’s access to sufficient resources and facilities for the Group to meet its obligations in the ordinary course of business could be jeopardised.”

The auditors continued: “As a result hereof, a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern.”

Transnet said in its results statement that bilateral and syndicated loans amounting to R15.8-billion, include a clause where a qualified audit opinion can constitute an event of default.

“On declaration of the qualified opinion, the bilateral and syndicated loan lenders have a right to accelerate their loans which then become due and payable,” it said.

The board and management had however engaged lenders on among others the root causes, remedial actions and timelines for remediation, Transnet said.

“To date, half of the lenders granted waivers and/or reserved rights to immediate acceleration to allow Transnet the opportunity to implement remedial actions to improve the control environment around the prevention and detection of irregular expenditure,” Transnet said.

It added that a funding strategy has been developed to ensure that the company “is able to successfully fund its capital investment plan without breaching the set financial parameters”.

Given the board’s engagements with lenders, and its assessment of Transnet’s performance, as well as its 15-month cash flow forecasts, it said it was satisfied that the company could continue as a going concern.

Gama delivered the results with an axe hanging over his head as he and two other executives — Transnet’s procurement officer Thamsanqa Jiyane and supply-chain manager Lindiwe Mdletshe — were last week served with letters of precautionary suspension over breached procurement processes.

However, according to a Moneyweb report, Gama sent a letter to Transnet’s chairman Popo Molefe challenging his suspension in which he argues he acted in good faith. 

“Like everybody I am going to clear my name but the time has not yet come for me to have any discussion about what is currently happening between me and Transnet. I will talk at the correct time,” Gama told the Mail & Guardian.

He added that there are more than 22 investigations underway at Transnet involving the Hawks and the Special Investigating Unit (SIU) to clear allegations of state capture at the parastatal. 

“We have a total of more than 22 investigations taking place and they arise from claims that certain third parties paid commissions to some of our suppliers. Therefore Transnet needs to find out whether those people who were paid, were paid as a result of the contracts our suppliers have with Transnet or it was to do with something else.”

These issues aside, Gama told media gathered in Kempton Park, that Transnet’s “sterling” results could be attributed to amongst other things, increases in container volumes as well as a rise in railed export coal and port container volumes.

Gama said the increases in irregular expenditure of R8.1-billion dates back to 2005. According to the notes to the financial statements around R3.4-billion in irregular expenditure was identified during the current year for reasons including for not following tender processes and a failure to comply with national treasury requirements. A further R4.69-billion in irregular spending was identified this year, but related to spending in the prior year.

Gama said that the entity is working on a remedial plan to deal with its contract management still to be presented to the board. The plan, according to Gama, will automate procurement processes in order to detect and prevent regularities as well as make its processes more effective.

Transnet has been dogged by allegations of corruption relating to its mega procurement deal of over 1 000 locomotives, with money alleged to have flowed to associates of the Gupta family.

He said Transnet wants to ensure that it never paid any inflated prices as a result of any corrupt activities. “We want to make sure that none of our procurement services were in fact corrupted as a result of that or compromised, which are the heart of corruption and the Zondo commission will deal with the issues of state-capture.”

Gratitude Ramphaka, a board member told the media that the results presented were audited and the board was comfortable with the results. — Additional reporting by Lynley Donnelly