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Most state-owned companies show improvement

But huge losses at the worst of the worst a risk for SA.
Transnet was among the state companies to increase profits but these gains pale in comparison to losses from the rest. Picture: Waldo Swiegers/Bloomberg

A Moneyweb analysis on the latest results of South Africa’s state-owned enterprises (SOEs) shows that most performed satisfactorily in the year to March 2018, but 13 of the 30 are still performing dismally.

Nine of these – Eskom, SAA, SA Express, the SABC, the Post Office, Denel, roads agency Sanral, PetroSA and passenger rail agency Prasa – continue to bleed so much cash they dwarf the positive results from the rest.

The nine struggling companies posted total losses of nearly R20 billion over the 12 months.

Figures indicate that SOEs increased their profits in aggregate to a total of more than R5.1 billion compared to the aggregate loss of R3.1 billion the previous year. This increase comes mostly on the back of solid results from Rand Water, the Industrial Development Corporation (IDC), insurer Sasria and Transnet, which together posted an improvement of more than R4 billion in profit.

Transnet’s profit increased by more than R2 billion to R4.8 billion, while profit at the IDC increased by more than R1 billion. Rand Water showed an improvement of R759 million in its surplus for the year and Sasria posted an increase of R482 million.

Losses at Eskom reduced by R2.2 billion and PetroSA reduced its loss by nearly R1 billion.

Airline results delayed yet again

Results for the year to March 2018 are the latest figures that are available for SOEs, while SAA and SA Express could once again not even manage to produce their annual reports for the year to March 2018 – more than a year after the financial year-end.

Not surprisingly, SAA and SA Express are also two of the worst state-run companies. After months of badgering by Parliament and the Minister of Public Enterprises, SAA eventually revealed that it suffered a loss of around R5.6 billion in the year to March 2018. That SAA posted a loss more than twice as big as that of the bungling and corruption-ridden Eskom is telling in itself.

SAA’s annual report will make for interesting reading when it is published. An enquiry to SAA about when the annual report and audited financial results would be available was answered promptly by the airline’s spokesperson with: “When it is ready.”

The last audited figures that SAA’s management, bankers, suppliers, the department and taxpayers can rely on relate to the year to March 2017 and are thus more than two years old.

The old results showed that SAA suffered a loss of R5.4 billion in the year to March 2017, compared to a loss of nearly R1.5 billion in 2016. Liabilities of R33.7 billion were more than double the assets of R15.9 billion at the end of March 2017, leaving SAA with negative of equity of R17 billion. Things have deteriorated since then as SAA continued to raise more loans on the back of state guarantees, seemingly not knowing the difference between revenue and debt or profit and capital.

How another two years of huge losses and loans have affected the balance sheet is anybody’s guess, but it seems unlikely that even the most ardent believer in a national carrier would still believe that SAA is not totally bankrupt.

Luckily (all things being relative), the struggling airline is not a private company. A private company would have struggled to get loans with these old financial statements and, in the case of listed companies, would have been sanctioned by the JSE within three months of its year-end. Shareholders would have shown the directors the door long ago.

Nevertheless, SAA apparently succeeded in convincing its bankers to delay the repayment of loans due at the end of March to a later date. SAA chief executive Vuyani Jarana was reported to have made an announcement that agreement was reached with its bankers that payments to the value of R9.2 billion would be rescheduled.

Read: SAA nears debt rollover agreement with lenders

There is even less information available about the state of affairs at SA Express. Last reports disclosed that it continues to operate only 14 of its aircraft, while still paying the overheads associated with the aircraft, such as leases and insurance. SA Express is also paying the salaries of its full contingent of employees.

Moneyweb’s summary of state companies’ results includes an estimate loss of R360 million for SA Express in the 2018 financial year compared to a small profit in 2017.

Profit/loss of state-owned companies in 2017 and 2018

R million 2018 2017
Acsa  842 2 005
Alexkor  34  6
Armscor  2 – 127
Aviation Training Academy  190  185
Broadband Infraco – 113 – 127
CSIR – 14  76
Development Bank SA 2 283 2 821
Denel -1 771  282
Eskom -2 337 -4 608
IDC 3 224 2 200
Independent Development Trust – 92 – 134
Land Bank  254  367
Mintek  2  6
Necsa  98 – 29
PetroSA – 666 -1 608
PIC  441  533
Post Office – 908 – 967
Prasa – 925 – 928
Rand Water 3 173 2 414
SAA * -5 600 -5 431
SABC – 622 -1 040
SABS – 30 – 46
SA Express * – 360  17
Sanparks  202  257
Sanral ** – 260 -4 962
Sasria 1 025  543
Sentech  153  105
Trans-Caledon Tunnel Authority 2 087 2 304
Transnet 4 851 2 765
Total 5 163 -3 121
* Estimate for 2018    
** Adjusted (see text for details)  

Source: Compiled by Moneyweb from individual 2018 annual reports.
It is difficult to comprehend that SAA and SA Express were not the worst performers.

Denel did much worse – with a loss of R1.77 billion for the year, compared to a small profit of R282 million in 2016. In addition, the figures seems dubious, with the auditor-general stating that it was impossible to give an opinion on the financial statements because he could not verify revenue, costs, inventories, trade debtors or liabilities.

The auditor-general’s concerns with Denel’s financial statements run to eight pages and, in short, state that the Denel businesses did not have proper accounting systems in place to account for their projects, nor did they apply general accepted accounting principles correctly.

The SABC also deserves a special mention. While management uses most of the annual report to praise itself on achievements during the year, the figures show that the state broadcaster suffered a loss of R622 million in 2018 after the loss of R1 billion in 2017.

The auditor-general could also not give an opinion on these figures, due to several shortcomings in the organisation’s financial management.

The audit report notes that the SABC is commercially insolvent as current liabilities exceeded current assets by some R291 million and the SABC was unable to pay debt on time.

It also states that the SABC failed to supply particulars of irregular expenditure and the auditor-general was unable to determine if the disclosure of irregular expenditure of nearly R5 billion over the last few years was accurate or if further adjustments would be necessary.

Some of the losses from state enterprises are worse than they look at first glance. For instance, Prasa suffered a loss of R925 million – after taking into account a R5.9 billion government subsidy. Armscor could eke out a R2 million profit after spending a R1 billion government subsidy. CSIR received R722 million from government in 2018 and ended the year with a loss of R14 million.


Sanral’s profit of R22.2 billion looks stunning at first glance, but upon closer scrutiny reveals that most of the ‘profit’ can be attributed to a gain due to the revaluation of assets to the tune of R22 billion, the second year in a row that a gain of this magnitude has been included in the income statement.

Most financial analysts will ignore these gains as the road network is hardly an asset that can be sold to realise this profit. We adjusted the figures in our analysis to reflect this in both 2017 and 2018.

Eskom halved its loss from R4.6 billion in 2017 to R2.3 billion in 2018 but such a massive loss for a monopolistic utility seems strange. Although reams have been written about allegations of corruption, inquiries and the general view that Eskom is inefficient, the 2018 annual report still delivered a few interesting facts, such that arrears debt exceeded R25 billion at year end.

Eskom noted that amounts owed by municipalities increased to R13.6 billion at year end (up from R9.4 billion at March 2017). Eskom reached payment agreements with 52 of the defaulting municipalities, but only 28 of these were honouring the agreements.

Just four municipalities, all in the Free State, owed Eskom more than R5.4 billion by March 2018. Eskom has started to supply big electricity users, such as mines, directly to ensure payment.

In addition, Eskom notes that a total of 98% of electricity accounts (totalling R12 billion) to Soweto residents are in arrears with only 15% of people bothering to pay anything at all. The installation of pre-paid meters has encountered resistance and equipment is vandalised frequently.



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But dey got deir freeedom -everything is for free!!!!

Insightful article. In aggregate these results are suprisingly good (or at least not bad). I guess fewer than 1 in 100 voters would say they were as a good as this if asked.
If we could shut SAA immediately and then focus all heavyweight management efforts on ESKOM and put a reasonable team into the SABC (which is non-critical) maybe the situation wouldn’t be that dire.

None of them are critical except for ESKOM (unfortunately), and maybe PRASA.

What about SAA! Results DELAYED again – it’s now a regular story! If they were listed on a stock exchange they’d be shut down long ago with directors held liable!

Eskom is not essential, but maybe centralised electricity supply and a grid.
Eskom is technically insolvent and operationally, technically incompetent. It has R 460 Billion debt of which R 350 B is state guaranteed. It is losing, increasing its debt by R 2-3 Billion a WEEK !
Just as SAA, it should be liquidated ASAP. The scraps of the mostly old and dilapidated power stations should be taken over by 3 or 4 private competing energy companies at any cost. Eskom might not be even able to retrieve the R 300 to 35 b it spent on Medupi and Kusile.
Actually, I have been saying for 3,4 years now on my MarcanX Disqus profile that Eskom should be split up into 3 or 4 private energy companies and a company that runs the grid. And all should be private. In that scenario energy regulator NERSA should act as a truly independent watchdog over the sector and together with competition authorities and environmental agencies guard us from collusion, price fixing and environmental disasters.
The whole energy sector has to be deregulated. liberalised, privatised and greened up.
We should either get our power from our own solar setup, with the possibility to feed back, get it from a local mini grid or from one of the large, private energy companies that power the national grid.
International companies like e.on, ENEL, EDF. ENEL is already involved in SA in renewable projects. R 200 B is already invested, for a large part FDI in SA’s renewables. All projects were built, up and running in 1 to 3 years. Compare that to the 12 years at Medupi.
Acc to a 2016 CSIR report SA should be able to get 70% of its power from renewables and the rest mainly from natural gas within 20 years. Massive gas reserves have been found 165 km from Mossel Bay recently, but it will take still 6 -10 years before we have it piped to shore. Mozambique also has large gas reserves. And there is the Kudu gas field on the west coast.
Koeberg life is being extended with another 20 years, to last at least till 2040. Coal is the Big Baddy and has to be phased out ASAP.

Improvement …off a low base.

We’ve been conditioned to have minimal expectations, from years of watching the SOE circus.

One can hope that the relentless (&deserved) negative publicity has forced SOE’s to actually put some effort into running their businesses a business.

Insightful & well-written article nonetheless. And a pleasant surprise to have some good news among the swathes of bad news recently.

You must be joking. Read again. The corrupt ANC parasites have killed the economy.

So basically the vampires are continuing to bleed us dry…

Surely the last thing an SOE needs to judged on it profits? They should be able to cover their costs for sure, but should rather be judged on the quality of outcomes based on their mandates?

Valid point. Lets test the hypothesis of outcomes review:

Eskom cant keep the lights on.
SAA is expensive and never on time. Also their customers are more likely to have their luggage expropriated without compensation than other airlnes.
Prasa cant keep the trains on track.
Neither can metrorail.
Transnet cost mining companies heavy losses last year when they were unable to transport shipments of ore because of broken rails.
Our harbours are deterioraring, also transnet.
Post office service is unreliable
SABC has questionable credibility and have shown themselves to be biased in the past.
Trans caledon authority were involved with the Lesotho highlands water project which is not delivering water to gauteng as it should.
Petrosa is doing very little of value, ditto mintek and alexkor.

Randwater is genuinely good but there are 13 other water boards in the country of differimg values.
The IDC — how many businesses have they managed to get off the ground?
The PIC is implicated in fraud.
Denel was repurposed to be the zupta money laundromat.

The RAF wasnt included here but they are permanently bankrupt and a big reason why our petrol prices keeo going sky high. On top of that they are slow and erratic in making payments and appear to have no ability to counter fraudlent claims.

Necsa is actually good eithin their sector when they are left alone and the Land bank and Development bank pass the test of quality.

Based on quality of outcomes, I would suggest the SOE’s are doing even worse than just a simple profit/loss review.

There is some truth in what you say but remember that SA has a lot of things that needs doing with little money. Poverty cannot afford inefficiencies. Contractors to SOEs who are uncompetitive in the private sector and only have their BEE credentials to thank for their business do not help the big picture in the long term. Contractors must be able to stand on their own feet at the end of their SOE contracts – that is true empowerment.

Profit and loss statement is pointless (any accountant can tell you that(.

Lets compare cash generation of these SOE’s over the last year and then we’ll talk real numbers.

What happened at Denel, from 282 to -1771.

They lied and stole- just like the others.

So some SOEs improved. What would’ve happened if those companies had been privatised decades ago? Would the tax payers have thrown away billions to sustain corrupt organisations? Would biiliions have been stolen. Would our sovereign rating be junk?

Close the Post Office with immediate effect. This will close 1 bleed and no one will notice.

The ANC admitted at Davos that around 700 SOE’s are bankrupt or close to.

Where are the investigative journalists on those?

Maybe I am stupid or naive (both?) but I cannot see why taxpayer owned “enterprises” should show any profit or loss at all. They should break even. Many are semi monopolies and so can just increase their prices to get the desired result. “Profit” for many just makes the actual private businesses that rely on them struggle. The Land Bank shows a profit yet SA farmers struggle to compete in overseas markets or need tariff protection. How stupid is that?

Dialled in “profit” also encourages massive inefficiencies and looting as we see with Eskom. My view; privatise (cleanly; no cadre BEE dodges etc), no monopolies.

K, so its not possible to break even year after year. You may budget according to that idea (anyone who owns property in sectional title should know this) but the vagaries through the course of the year means you will end up with surplus or deficit. Surplus allows you the chance to either spend more on fixed infrastructure upgrades, or put it back into operations thereby reducing the need to hike prices too much to keep tred with costs.
Deficit, otoh, means you have to add funds into the business to keep functioning at the same level. This eiher by raiding savings (the effect of long time cumulative surplus) or you hike your prices. Or you ask the shareholder/ owner to refinance operations by adding more capital.
This latter is why SOE’s are sinking us because they keep asking for money.

And actually maybe surplus/ deficit might be better definitions to use than profit/loss.

Surplus or profit allows an enterprise to remain self-sufficient; loss or deficit means the owner will have to keep pumping money intended for other use into the business.

Remember also that SOE’s in theory are supposed to pay dividends back to govt which theoretically could mitigate the need to keep raising taxes for govt revenue.
But you need profit before you can pay dividends.

End of comments.





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