Transnet – Africa’s largest state-owned freight rail and ports company – has hit its first half-year headline loss in the wake of the Covid-19 economic crunch.
The group swung to a headline loss of R3 billion for the six months ending September 2020, compared to a R2.9 billion headline profit for its 2019 interim period, according to its latest results that were published on Friday.
Transnet saw a significant impact in its business, with the global Covid-19 pandemic and tougher government-instituted initial lockdown measures designed to curb the spread of the virus resulting in a major drop in freight rail and port volumes.
Freight rail experienced a 16.4% drop in volumes, while port container volumes plunged 20.7%. The freight rail business accounts for around 60% of the group’s revenue, while ports (including Transnet Port Terminals and Transnet National Port Authority) is the second largest contributor, at around 35% of revenue.
Transnet, which also operates fuel pipelines that largely run from Durban to the economic heartland of Gauteng, saw pipeline volumes plummet 38%. However, this is a comparatively small part of its business.
The group’s overall half-year revenue fell 17.3% to R32 billion (2019: R38.7 billion).
Earnings before interest, tax, depreciation and amortisation (Ebitda) plunged almost 44% to R9.8 billion (2019: R17.5 billion). However, the group noted that its costs are “largely fixed” with staff costs accounting for approximately 59% of its operating costs.
“Transnet’s half-year results are on back of the South African economy suffering a significant contraction during April, May and June of 2020, when the country operated under nationwide lockdown restrictions in response to Covid-19,” it noted in a Sens statement on the JSE.
The group is not a JSE-listed tradeable stock as it is wholly owned by the South African government. However, the group has a debt listing on the JSE which advises noteholders of its financial performance and debt position from time to time.
“Transnet continues to be a cash generative business with R12.6 billion cash generated from operations [during the interim period] after working capital changes,” it said.
Capital expenditure was down 37.5%, to R4.9 billion. Most of this went into maintaining the assets.
The group noted in a separate media statement that the closure of construction sites and disruptions in procurement supply chains during Level 5 lockdown was the reason behind the decline in capex and maintenance.
“Transnet raised R11.1 billion in long-term funding for the period from bank loans, development finance institutions and bonds … Transnet’s gearing ratio at 48.7% and rolling cash interest cover, including working capital changes at 2.5 times, remained within the triggers in loan covenants,” it added.
The group pointed out in both its Sens and media statements that it “is a going concern” and “has continued to adopt the going concern principle in preparing its financial results”.
Transnet’s half-year results have been reviewed by the Auditor General (AG) of South Africa, who has issued an “unmodified review opinion”.
Its Sens further noted that “there were no restatements of prior period financial information”.
The group received a qualified audit opinion for its previous full-year results from its auditors SNG Grant Thornton. The AG’s office has now been called in to oversee Transnet’s external audit.
According to Transnet’s half-year results presentation, its “total comprehensive loss” comes to R5.57 billion. This was largely on the back of devaluations and actuarial losses on “post-retirement benefit obligations”.
Meanwhile, the company is reporting a rebound in freight rail, port container and pipeline volumes. Transnet noted that as lockdown restrictions have been eased, it has experienced month-to-month improvements in performance across key indicators.
On the outlook, Transnet said in its Sens statement that there are “signs of volume improvements” in the third quarter of its current financial period.
“However, the emergence of a second wave of the Covid-19 pandemic brings about a level of uncertainty on the 2021 financial year performance,” it added.
Transnet said that its executive team remains committed to drive the turnaround plans of the group.
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