Transnet has posted a huge R7.3 billion loss for the 2023/24 financial year, more than half of which was due to claims by Total and Sasol's multi-billion-rand third party South African National Petroleum Refiners (Natlef) over fuel lines, which are the subject of a drawn-out High Court battle.
Speaking at a financial results press conference on Monday, Transnet executives said that despite suffering a loss 43.4% higher than the R5.7 billion loss in 2022/3, the state-owned rail, ports and pipeline company had invested heavily in new infrastructure, improved operational performance and increased rail and port freight volumes.
Chairman Andile Sanku said the challenges facing the logistics group have been “years in the making” but that a recovery plan put in place in October 2023 is beginning to bear fruit.The plan proposes interventions to turn the business around over periods of six, 12 and 18 months.
“When we met approximately a year ago to present our annual accounts for 2022/23, we explained the crisis facing the organisation,” Mr Sank said.
He said Transnet was suffering from serious operational and financial underperformance which was “deteriorating” the country's economic performance, adding: “It is clear that urgent intervention is required to halt the decline in performance and stabilise operations.”
Sank said the latest annual results showed a “slight improvement in performance” and a slightly improved loss position compared with last year.
However, this was negatively affected by a R4.7 billion accounting provision the company had to make due to the Natrev case, which involves a dispute between Total and Sasol over historic tariffs imposed under apartheid-era agreements, currently before the courts.
Transnet chief executive Michelle Phillips said rail volumes at Transnet Freight Rail, which account for 44% of revenue, rose 1.5% to 151.17 million tonnes from 149.5 million tonnes in 2022/23, slightly below the 154 million tonne target set in the recovery plan, while port volumes rose 2.9% to 4.152 million tonnes in 20-foot equivalents.
Despite achieving revenues of R39 billion, Transnet Freight Rail continues to face “significant challenges including a shortage of locomotives, persistent infrastructure problems, vandalism and theft”.
“Security incidents increased by 5.4% during the study period. Cable theft accounted for 57% of incidents that occurred, with over 1,000km of cable stolen. The economic impact is huge,” Phillips said.
“The impact is estimated at R4.2 billion, on top of last year's loss of R3.7 billion, with revenue losses due to the disruption reaching R2.1 billion and security costs amounting to R1.9 billion.”
The company also incurred costs of R162 million to replace damaged rail infrastructure. Phillips said the liberalisation of the rail and port industries was underway.
“The introduction of third-party access allows private rail operators to operate on the rail network, promoting healthy competition and encouraging improved efficiency and service. It also sees private terminal operators entering services such as containers that were previously managed exclusively by Transnet,” she said.
“These changes are designed to modernise the sector, increase private sector participation and ensure Transnet remains competitive in a rapidly changing environment.”
Strategic initiatives include the development of a coastal accumulation facility and import terminal in Durban.
“The import terminal is designed to provide storage facilities for new entrants and previously disadvantaged South Africans, enabling them to enter the market and move products around the country,” Phillips said.
“We are also working on a new jet fuel pipeline, known as PL6, which is intended to transport jet fuel to OR Tambo. We are also working on a private sector participation venture with Vopak Terminals in the establishment and construction of an LNG terminal at Richards Bay.”
She said Transnet was repurposing the Lily Pipeline, currently used to transport methane-rich gas, to transport natural gas to support the transition to cleaner fuels.
Transnet group chief financial officer Nosipho Maphumulo reported that the company's revenue increased by 12% to R76.7 billion and net operating expenses increased by 19.2% to R54.7 billion, which he said was mainly due to third-party claims in litigation, and higher staff, security, energy (including rail power), materials and maintenance costs.
However, without the Natref litigation costs, expenditure would have increased from 4.3% to 8.8% in 2022/23.Earnings before interest, tax, depreciation and amortisation fell 3.6% to R22 billion.
He said the company's debt balance had increased to R137 billion from R130,067 in the previous financial year.
“Unfortunately, we are rated below investment grade (by international ratings agencies Moody's and S&P Global). With our turnaround and recovery plan, we expect that we as Transnet will be able to improve our credit rating sustainably in the future,” Maphumulo said.
She said the company had received an unqualified audit report from the Auditor-General and had made “significant improvements” in fraud, futility and wasteful expenditure, with the number of reported incidents falling from 2,801 in 2022/3 and 3,869 in 2021/22 to 1,763 in 2023/24.
“Irregular expenditure in 2021 was just under R4 billion and we have reduced that figure to under R2 billion by the end of 2024. So we are continuing to work hard in this regard to ensure we run a clean organisation,” she said.
The company has orders for a number of pieces of equipment, including rubber-tyred gantry cranes, straddles, ship-to-shore cranes, carriers, helicopters and tugs, all due to be commissioned between 2024 and 2026, and is seeing a “steady and certain” improvement in the availability of critical equipment and supplies for the rail, port and pipeline sectors.
Maphumulo said there were three pillars to optimising the business's balance sheet, including its own efforts under the recovery plan and working with lenders and shareholders to find innovative solutions.
“Finally, the most important thing is cost reduction and efficiency. As Transnet we are continuing to work to reduce our cost of service. If we reduce our cost of service, increase our capacity, do a lot of self-help and get rid of many of the non-core items in our business, there is no reason why Transnet should not be profitable,” she said.
“We have a target of R1 billion by the end of the 2024 financial year. It's not going to be easy but I am confident that if all Transnet employees, customers, service providers, lenders and all stakeholders work together, we can bring Transnet back to its glory days. We can bring Transnet back to profitability, at least by the end of this year.”
