Transnet plans to spend R229.2bn

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State-Owned freight and logistics company Transnet has said that it planned to invest R229.2billion in the next seven years to diversify its revenue streams. Transnet group chief executive Siyabonga Gama announced this in Johannesburg yesterday when he presented the company’s financial results for the year to the end of March. He said the investment would include R20bn earmarked for mergers and acquisitions. “The 10-year expectation, dependent on validated demand, is capital expenditure of between R340bn and R380bn,” Gama said. The group said it had acquired locomotives to modernise its fleet in expectation that freight volumes would increase in coming years. It concluded contracts in 2014 that resulted in the acquisition of about 1319 locomotives for the general freight and coal business over the market demand strategy period. Gama said the company wanted the acquisition of the locomotives probed by the board. He said they had appointed law firm Werksmans Attorneys to investigate whether Transnet was overcharged for the locomotives or whether the firm followed its own procedures and examined comparable pricing. Gama said the process would take up to three months to complete. Transnet is among the state-owned entities at the centre of allegations of state capture.

Economic Freedom Fighters president Julius Malema has claimed that up to R17bn was lost in a corrupt deal involving the procurement of 1064 locomotives.

Transnet reported a profit R2.8bn for the period, up from R393million in 2016.

Revenue increased 5.3percent to R65.5bn, from R62.2bn, fuelled by a 4.9percent increase in general freight to 88.1million tons, a 2.4percent increase in export coal volumes to 73.8million tons, and a 24.3percent increase in automotive and container volumes on rail to 9.2million tons.

The group’s port containers increased only 0.7percent because of weak consumer demand, while automotive export volumes rose 3percent.

“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 R2.4bn saving in planned costs,” Gama said.

It said its key measure of profitability - earnings before interest, taxation, depreciation and amortisation - increased 5percent to R27.6bn, up from R26.3bn.

Cash generated from operations after working capital changes rose 16.4percent to R32.8bn, up from R28.2bn a year before. The group said this reflected its strong cash-generating capability.

CREDIT RATING

In April, Standard & Poor’s Global Ratings revised the company’s foreign currency rating from BBB- to BB+ and its local currency rating from BBB to 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's, 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,” Gama said.

Gama said Transnet had evaluated the potential impact of the credit ratings downgrade on its financial position, liquidity and solvency and expected no negative effects as the probability had already been factored into its operations.

He said that, for the year ahead, management has adopted a new business model, called Transnet 4.0, which was designed to reinvent the company’s operational philosophy to include expansion into the rest of Africa, the Middle East and south Asia.

“The aim is 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,” Gama said.

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