Transnet’s tame interim results as Tau takes charge

After boasting about its ‘best ever’ annual financial results for the year to March in August, ports and logistics parastatal Transnet posted much-tamed interim results this week.

The state-owned enterprise (SOE) released its results for the six months ending September 30 quietly. Profit after tax decelerated 15% to R2.8 billion, compared to R3.4 billion for the same period in 2017. The group’s revenue increase slowed to 1.3%, reaching R37.6 billion, while the earnings before interest, tax, depreciation and amortisation (Ebitda) increase slowed to 2%, hitting R16.6 billion. In the corresponding 2017 half-year, Ebitda increased 17.7% while revenue grew 13.8%.

Transnet highlighted the recession in the first half of 2018 and leadership challenges as contributors to the poorer performance. Former group CEO Siyabonga Gama was fired in October after clashing with the board; the conflict largely related to corruption and state capture allegations around a R54 billion deal to buy new locomotives.

Resolute action

In its interim results, Transnet commented: “Against this economic backdrop, Transnet’s current leadership embarked on a course of resolute action to rid the company of all malfeasance and to stabilise the organisation by restoring its integrity. Notwithstanding negative media allegations, the company achieved notable results, confirmed by increased Ebitda and a net profit of R2.8 billion for the period.”

It added: “This was mainly due to management’s continued drive to improve productivity and operational efficiencies, contain costs and to optimise capital investment.”

While Gama presented the last full-year results in August, Transnet’s latest interim results came as a low-key affair with just a PDF of the results emailed to media. Tau Morwe, who was appointed acting group CEO last month, did not take any questions related to the results and a media briefing that was set for November 30 was cancelled.

Morwe, a former CEO of Transnet National Ports Authority who has held various positions during a 17-year tenure at Transnet, was brought in as part of a new leadership team in government’s clean-out of SOEs. He left Transnet in 2015 and has not been tainted by state capture allegations. He is acting CEO until April next year, but is likely to be a strong contender to take over the role permanently.

New strategy

Transnet chairman Popo Molefe said in a statement on December 3 that the group had held a strategy workshop where the board and top management come up with a new strategy to “take the company forward”.

He added: “The central theme and thrust of the strategy workshop was to review the deteriorating financial and operational performance of Transnet. The board also agreed on key strategic interventions to arrest the decline and craft a new growth trajectory.”

Molefe said part of the plan is to reorganise and rationalise Transnet’s operating model and corporate structure, underpinned by financial sustainability, customer centricity and operational excellence goals. The board took a resolution to dissolve Transnet’s group leadership team and replace it with an interim group executive team until its new executive committee is established.

Molefe said Morwe has been tasked with developing a revised operating model, corporate structure and new group executive, including its supporting implementation strategy. This would need to be submitted to the board by the end of February 2019. 

Meanwhile, in terms of its latest interim results, Transnet said revenue for the period was supported by an increase in petroleum and port container volumes. Operating costs increased marginally by 0.8% to R20.9 billion, despite an increase of 10.8% in maintenance costs, a 23.5% increase in fuel costs, and a 4.2% increase in electricity costs.

Cost-optimisation initiatives

“Numerous cost-optimisation initiatives implemented throughout the company aided cost containment, resulting in a R1.4 billion saving against planned costs,” it added. “These initiatives included rationalising overtime, reducing professional and consulting fees; rolling out programmes to measure the execution of condition-assessment versus time-based maintenance; and limiting discretionary costs relating to travel, printing, stationery and telecommunications.”

Depreciation, derecognition and amortisation of assets increased by 12.7% to R7.2 billion (2017: R6.4 billion) due to the revaluation of rail and port infrastructure in the prior reporting period and the operationalisation of the New Multi-Product Pipeline, according to the statement. Profit from operations after depreciation and amortisation decreased by 5.1% to R9.4 billion (2017: R9.9 billion).

While cash generated from operations increased by 6.5% to R18.4 billion during the period, finance costs increased by 22.9% to R5.8 billion. Transnet said its gearing of 43.8% and cash interest cover at 3.1 times were both comfortably within loan covenant requirements. However, when compared to its last full year results, gearing is up marginally. Its gearing for the full year to March was 43.4%, while its loans stood at R122.5 billion.