Wrap Text
Transnet SOC Ltd Annual Audited Financial Results 2017
TRANSNET SOC Ltd
Transnet delivers positive performance despite difficult economic environment
03 July 2017
* Revenue increased by 5,3% to R65,5 billion
* Automotive and container volumes on rail up 24,3%
* General freight business up 4,9%
* Operational efficiency improves by 14,9%
* EBITDA up 5% to R27,6 billion
* Capital investment of R21,4 billion, taking total expenditure during the MDS period to R145
billion
* Gearing at 44,4% and cash interest cover at 2,9 times - significantly within loan covenant
requirements
* Cash generated from operations after working capital changes rose 16,4% to R32,8 billion
* B-BBEE spend of R37 billion or 103,1% of total measured procurement spend.
Transnet today delivered an impressive set of financial results for the year ended 31 March
2017, driven by strong volumes in general freight, export coal and manganese as the
Company’s road-to-rail strategy gathers pace. This confirms the Company’s financial
strength and operational endurance in a subdued economic environment.
Revenue for the year under review increased by 5,3% to R65,5 billion (2016: R62,2 billion),
spurred by a 4,9% increase in general freight to 88,1 million tons (mt) (2016: 84 mt), a
2,4% increase in export coal volumes to 73,8 mt (2016: 72,1 mt) and a 24,3% jump in
automotive and container volumes on rail to 9,2 mt (2016: 7,4 mt).
In addition, the Company moved a record 12,1 mt in manganese volumes, a 17,5% jump
from 10,3 mt in the previous year. This was driven by significant improvements in
operational efficiencies, including creation of new loading and off-loading zones and a
recovery in manganese prices.
The increase in revenue was dampened by price reprieves in excess of R600 million to
struggling customers in an effort to stimulate the economy.
The volumes growth is a firm indication of the Company’s progress in gaining rail market
share, while continuously improving operational efficiency through the deployment of new
generation locomotives and technological interventions.
Volumes on the iron ore line were affected by lower demand and equipment failure at the
ports.
Encouragingly, demand for Transnet Engineering’s products resulted in a 19,6% increase in
external revenue to R1,6 billion (2016: R1,4 billion) despite a deteriorating economic outlook
both locally and in the rest of the continent. The increase in revenue is in line with
Transnet’s efforts to diversify sources of revenue into the rest of the African continent and
beyond. The company is currently aggressively marketing its recently-launched Trans Africa
locomotive which was designed, engineered and manufactured locally and is tailored for
African conditions.
1
Port containers increased marginally by 0,7% due to weak consumer demand, while
automotive export volumes went up 3%.
Management continued to proactively manage costs through limiting overtime, reducing
professional and consulting fees and imposing a limit on discretionary costs. This resulted in
a R2,4 billion saving in planned costs.
Transnet’s key measure of profitability, earnings before interest, taxation, depreciation and
amortisation (EBITDA), increased by 5% to R27,6 billion (2016: R26,3 billion), surpassing
the country’s economic growth rate, for the Transnet financial period, by more than seven
times.
Cash generated from operations after working capital changes rose 16,4% to R32,8 billion
(2016: R28,2 billion) reflecting the Company’s strong cash generating capability. The
Company’s ability to service debt remains secure with the cash interest cover ratio at 2,9
times (2016: 3,1 times) due to an increase in net finance costs. This is, however,
significantly above the triggers in loan covenants.
A well-defined and diversified funding strategy enabled the Company to raise R17 billion for
the year without government guarantees. Transnet has not tapped into government
guarantees since 1998.
The funds were raised from the following sources:
• Development finance institutions - R5,5 billion
• Commercial paper and call loans - R7,6 billion
• Export credit agencies - R2,9 billion
• Domestic bonds - R1 billion
The Company borrows debt on the strength of its financial position. During the year,
Transnet proactively and successfully renegotiated R29,1 billion of debt to lower and relax
the credit rating default triggers to below sub-investment grade, in view of expected rating
agencies’ downgrades.
In April 2017, Standard & Poor’s reviewed the Company’s foreign currency rating to BB+
from BBB- and the local currency to BBB- from BBB, both with a negative outlook. This
followed a similar action on the sovereign as Transnet is viewed to be closely linked to the
Government. S&P however, maintained Transnet’s stand-alone credit profile at 'bbb',
reflecting the company’s strong financial metrics as the company executes its multi-billion
rand infrastructure investment programme.
The Group evaluated the potential impact of the credit ratings downgrade on its financial
position, liquidity and solvency and expects no significant negative effect compared to
previous estimates, as the probability of a credit ratings downgrade had already been
considered.
The gearing ratio increased marginally to 44,4% (2016: 43,1%) due to the execution of the
capital expenditure programme. This level is significantly below the triggers in loan
covenants, reflecting available capacity for the Company to continue with its investment
strategy. The gearing ratio is not expected to exceed 50% over the medium term.
2
The Company continued to execute its infrastructure investment programme, spending
R21,4 billion in the year under review. This takes total investment under the Market Demand
Strategy (MDS) to R145 billion in the past five years. Transnet expects to invest a further
R229,2 billion, including R20 billion earmarked for mergers and acquisitions to diversify
revenue streams through geographic expansion over the next seven years to 2023/24. The
ten-year expectation, dependant on validated demand, is capital expenditure of between
R340 billion and R380 billion.
Among the Company’s significant investments is the acquisition of locomotives to modernise
its fleet in anticipation of a rise in general freight volumes in the coming years. Transnet
concluded locomotive acquisition contracts in 2014, which resulted in the acquisition of
approximately 1 319 new locomotives for the general freight business and coal business
over the MDS period. Overall, 452 locomotives have been accepted and contracts have been
concluded as follows:
• 95 class 20E electric locomotives;
• 60 class 43 diesel locomotives;
• 100 21E electric locomotives; and
• 197 locomotives from the 1 064 locomotive programme have been accepted into
operations, whilst four are currently undergoing acceptance testing.
Other infrastructure investment highlights for the year include:
* R2 billion invested in rail infrastructure
* R2,3 billion invested in the wagon build programme
* R137 million invested in expanding capacity for manganese beyond 5,5 mt, taking
total investment to R811 million so far.
* R145 million invested in the coal line expansion to 81 mt, including the upgrade of
yards, lines and electrical equipment.
* R28 million investment in the Waterberg upgrade Stage II to grow rail capacity to 6
mt through incremental upgrades of the existing rail networks and yards using
additional loops, while maintaining the existing axle loads, electrical upgrades and
improved train control systems.
* R1,5 billion investment in the New Multi-Product Pipeline. The 24” main pipeline and
16” inland pipelines have been fully commissioned and are operational, having
transported 15 billion litres of diesel from Durban to the inland region since
commissioning.
* R1 billion in the maintenance and acquisition of cranes, tipplers, dredgers, tugs,
straddle carriers and other port equipment.
Transnet uses its capital investment programme to advance South Africa’s developmental
objectives which include Broad-Based Black Economic Empowerment, supplier and
enterprise development and skills development.
In the year under review, Transnet’s total recognised B-BBEE spend was R37 billion or
103,1% of Total Measured Procurement Spend of R35,8 billion (2016: R43,5 billion or
100,6% of R43,2 billion).
Sadly, the Company lost 15 colleagues to road vehicle accidents, train-related incidents
mainly due to adverse weather conditions and non-adherence to internal operating
procedures. Management has heightened its oversight role of operational performance - and
safety performance in particular, to ensure the various levels of safety performance are
clearly understood and adhered to within the organisation.
3
Regarding corporate social investment, R234 million was committed to sustainable
community development programmes across the rural and needy communities of South
Africa, in areas such as health, education, rural sports development and through grants and
donations. More than 438 000 individuals benefitted from the health programme.
The Company spent 3,1% of its labour cost on training during the year, focusing on
artisans, engineers and engineering technicians. Overall, 173 full-time engineering bursaries
were awarded in various disciplines and 229 engineering technician trainees were given
workplace experience opportunities. Sector-specific skills development continued to focus on
maritime, rail and port terminal operations, with 1 813 learners participating in these
programmes.
Going forward, management has adopted a new business model, Transnet 4.0, designed to
reinvent the Company’s existing business model and operational philosophy to include
expansion into the rest of Africa, Middle East and South Asia; to grow into a fully integrated
logistics service provider with integrated solutions; and to strengthen manufacturing
capability, while positioning Transnet as an Original Equipment Manufacturer in Africa.
Issued on behalf of Transnet Group Chief Executive, Mr Siyabonga Gama.
By: Molatwane Likhethe, Spokesperson.
011 308 2458/083 300 9586
Molatwane.likhethe@transnet.net
For urgent queries, contact Viwe Tlaleane
011 308 2384/083 979 0707
Viwe.tlaleane@transnet.net
4
Date: 05/07/2017 10:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
