Transnet sees green shoots despite another challenging year

Group posts R5bn full-year profit, but revenue is still below pre-pandemic levels.
The Port of Durban – operated by Transnet, and the busiest port in sub-Saharan Africa. Image: Bloomberg

Transnet’s executives and board made no bones about its last financial year (April 2021 to March 2022) being one of its most challenging at a results presentation on Wednesday, despite the year seeing eased Covid-19 restrictions following the pandemic fallout in 2020.

But they were clearly more optimistic that the post- State Capture turnaround of the state-owned ports and rail company is gaining traction and business prospects are also continuing to improve.

Read: Transnet swings from over R8bn FY loss to a R5bn profit

Despite the July riots affecting operations at its busiest container terminal – the Port of Durban, together with a major cyber attack hitting all port operations, spiralling incidents of cable theft, and force majeures affecting port terminal operations countrywide as well as coal deliveries to Richards Bay, Transnet managed to return to profit.

The group posted a R5 billion profit for the year ended 31 March 2022, compared to a R8.7 billion loss (restated) for the Covid-hit prior financial year. However, revenues are yet to recover to pre-Covid levels.

FY2022 revenue increased by a modest 1.8% to R68.5 billion, compared FY2021. But revenue for its financial year ended March 2020 (pre-Covid) was almost R7 billion more, at R75.1 billion.

Read:
Transnet’s record R8.4bn loss for Covid-hit financial year
Transnet cyber attack confirmed: Port terminals division declares force majeure
Transnet lifts force majeure on 9 coal exporters

Nonkululeko Dlamini, Transnet’s CFO, said the group was pleased to see some “green shoots” after the Covid-19 financial blow in FY2021.

Unqualified audit

She added that Transnet securing an unmodified or unqualified audit from the Auditor-General’s office for FY2022 was a major milestone, especially considering that it is the first unqualified audit for the group in four years.

“Having qualified audits in the previous years presented challenges for us from a funding perspective,” she said.

Read: Transnet secures R25.5bn credit facility, with Deutsche Bank as lead bookrunner

Dlamini noted that the qualified audit opinions for prior years were largely linked to “legacy issues” around irregular expenditure related to the State Capture years.

She said these issues were ring-fenced by National Treasury, which allowed Transnet to be given an unqualified audit for its latest financials.

Transnet group CEO Portia Derby said that notwithstanding all the challenges during the last financial year, it is positive that the company has shown an improved financial performance following the Covid low.

She however acknowledged that the group is yet to get back to pre-Covid levels from a revenue and freight volumes perspective.

Cyber attack and cable theft

Derby conceded that the cyber attack on Transnet in July last year was “significant” and said the group continued to face challenges around the unavailability of locomotives and spiralling cable theft incidents, which were major contributing factors to the group’s rail coal supply woes.

“We lost 1 500 kilometres of cable last year [through cable theft] and we have to pay for it [to replace it]. This [cable theft] is having a massive impact on the rail system,” said Derby.

“Until we break the back of cable theft, the impact is going to be devastating – not just for Transnet, but for the country.”

In a virtual address during Transnet’s results briefing, Public Enterprises Minister Pravin Gordhan called on all South Africans and businesses to “expose those engaged in cable theft”.

“This is sabotage on both rail lines and on rail signaling equipment… The activity [cable theft] has a massive impact on the logistics network that Transnet operates,” he said.

Gordhan added that government and other stakeholders were working on new measures to try to curtail cable theft.

He also said cable theft was a contributing factor to the difficulties Transnet is facing in terms of its rail service capacity to coal miners. “Because of this sabotage, rail stock on the line to Richards Bay has been affected.”

State Capture

Gordhan said Transnet is “recovering from the period of State Capture”. However, he noted that “some issues” from the State Capture “entanglement” were still impacting the group, such as the issue around its coal line constraints.

While the controversial 1064 locomotives contract has been canned, Transnet shortage of locomotives and spares is another contributing factor to its rail woes.

“Transnet was one of the main targets of State Capture… The new management [under Derby] has only been in place since early 2020 [when Covid hit],” added Gordhan.

“Transnet is undergoing a structural transformation under is new leadership, which also includes changes at TNPA [Transnet National Port Authority],” he said.

Both Gordhan and Transnet chairperson Popo Molefe hailed the group securing an unqualified audit for FY2022.

Listen to Derby speaking about Transnet’s latest financial results (or read the transcript):

For a pdf version of the above, click here.

Brought to you by Transnet.

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To increase its revenue, Transnet will need to unapologetically:

1. Increase the number of its customers.
2. Increase the average transaction size.
3. Increase the frequency of transactions per customer.
4. Raise its prices.

I hope this is truthful good news – we seriously need it. I also hope the Auditors did their job properly unlike with Tongaat and Steinhoff apparently. Auditors looking for an upside on which to base their fees seems to be the new state of play!

End of comments.

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