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Transnet released its annual financial results for the year ending March 31, 2020 on Friday. Getty Images
- The state rail, port and cargo company Transnet presented its annual results in parliament on Friday.
- The entity remains in the green, although profits y fell 35%.
- The Covid-19 pandemic has caused a slowdown in global demand for exports, but there are green shoots, says President Popo Molefe.
Reports of China’s economy growing above 5% is a positive sign for state rail, port and freight company Transnet due to its exposure to the macroeconomic environment, says board chairman Popo Molefe.
Transnet presented its annual financial results on Friday for the year ending March 31, 2020. In a briefing on Friday, Molefe expressed optimism that green shoots were beginning to appear, this after the Covid-19 pandemic triggered blockages around the world, which affected demand.
Status captures ‘chamber of horrors’
Molefe said that since he was appointed chairman of the board in 2018, significant progress has been made to clean up the mess of the past, which is now broadcast on Zondo’s Commission of Inquiry into the state capture, which he described as a “chamber of the horrors “and a” terror to look at. “
Transnet managed to deliver a strong performance under the circumstances, said CFO Nonkululeko Dlamini. Revenue increased 1.3% to R75 billion. Dlamini said it was significant and reflected stability in income generation. The revenue growth was attributed to 2.9% rate increases, he explained.
The increases in revenues were offset by a decrease in freight volumes by rail, due to deteriorating economic conditions and low demand in many market segments; primarily in the construction and manufacturing industries, Transnet said in a statement. Challenges in power supply and poor conditions on the rail network also affected rail volumes.
Ebitda increased 0.7% to R34 billion. Operating costs had increased by 1.9% to R41.1 billion, linked to increases in personnel and energy costs. The group has been implementing cost optimization initiatives that have helped save R4.7 billion.
The net profit, however, fell by 35% to R3.9 billion, this is as a result of the fair value adjustments made the previous year, which was a unique event, explained Dlamini.
During the briefing, CEO Portia Derby noted that the entity could pay dividends soon, which, according to Public Companies Minister Pravin Gordhan, would set a precedent among state-owned companies (SOEs).
Gordhan praised the “excellent” performance at Transnet, saying it was a relief to speak of a state company without having to mention “bailouts” or “guarantees.”
Irregular spending
Transnet, however, received a qualified audit opinion from the auditor general. Since 2018 there has been an increased focus on reporting irregular expenses, although auditors have felt this information has been incomplete. Audit issues raised in 2018 date back to 2011/12, it noted. In the 2019/20 financial year, Transnet incurred irregular expenses of R9.9 billion. In comparison, the accumulated irregular spending, which includes the year 2019/20, amounts to R114.3 billion.
Dlamini said that while efforts to improve information have improved over the years, a lot of work must be done to stop the problem. Transnet has to review 13,000 previous contracts to determine if they have any irregularities. A total of R43.6 billion of irrigation expenditures was reported in the acquisition of 1,064 locomotives, which has been the subject of investigation by the Zondo commission over state capture.
Dlamini, however, said there has also been a review of supply chain management processes. The incidence of irregular expenses in new contracts has also been reduced. In the past, internal audit was outsourced, now a hybrid model is being introduced to strengthen assurance levels. The financial structure is also being reviewed and, as of November 1, a loss control function will be appointed to ensure compliance with the Public Finance Management Law.
Zero-based budgeting
Transnet is also embarking on a zero-based budget approach, which was praised by Gordhan during the briefing. He said it would make a “big difference” to manage the cost structure. Derby noted that it can be a huge task given the size of the entity and that it would take time.
Dlamini said the corporate plan for February will contain details on budget processes. Transnet aims to address legacy project issues that have remained in the system and have continued to be budgeted, eliminating the hiring of consulting services for the job.
