Despite logistics group Transnet returning to profit in the six months ended September 30, it suffered a R97 million impairment of assets from the floods in KwaZulu-Natal earlier this year.
The state-owned enterprise for rail and ports, posting its interims late on Thursday, said profit for the period was R159m from a R78m loss the prior corresponding period in 2021.
However, its headline earnings fell to R254m from R579m.
“Transnet’s performance for the period was underpinned by significant operational disruptions, associated with the floods in KwaZulu-Natal at the start of the financial year and the continuing binding constraints of vandalism of its infrastructure, including fuel and cable theft, as well as the unavailability of locomotives,” it said.
The group suffered an impairment of assets amounting to R97m from R820m primarily due to property, plant and equipment impairments resulting from the flooding in KZN and derailments. This was partially offset by a positive index valuation on port operating assets, and the reversal of the impairment of trade and other receivables.
Its revenue increased by 2% to R36.1 billion, while its Ebitda (earnings before interest, taxes, depreciation, and amortisation was down 2.5% to R12.9bn.
Net operating expenses increased by 4.6%, below inflation, to R23.1bn
While Transnet’s Port Authority revenue increased 7.7% to R6.7bn, due mainly to increased marine, container and bulk revenue; its net operating expenses increased by 16.4% to R2.8bn, due mainly to increased maintenance, higher electricity and fuel costs, and material costs as a result of increased activity arising from higher volumes moved.
Transnet Freight Rail was knocked by continued challenges posed by security-related incidents, rolling stock unavailability, and safety incidents.
This resulted in a slower-than-expected recovery from the constrained volume base of the prior financial period.
“These trading conditions negatively impacted rail volume performance as evidenced by a decline in operational and financial results relative to the prior period,” it said.
Volume performance was lower than the prior period, reflecting a decrease of 9.2% to 81.5 million tons. Revenue for the period under review decreased by 5.5% to R18.7bn, largely attributable to the decrease in rail volumes.
“The under-performance of Transnet Freight Rail, which contributes 45% of total revenue, is mainly driven by the challenges mentioned and resulted in Transnet not meeting the cash interest cover ratio of 2.5x for some lenders,” it said.
“However, all the affected lenders have provided the required waivers to Transnet. The agreement reached with CRRC E-Loco Supply, if successfully implemented, is expected to unlock the bottlenecks related to the availability of locomotives on key corridors, including the coal and iron-ore lines.”
In its outlook, it said there was meaningful progress in the implementation of its strategy to grow and fix the core of its operations, and partner with the private sector to improve efficiencies and increase capacity.
Significant transactions that give effect to the growth and operational improvement strategy were progressing well, it said.
With regard to the Durban Container Terminal Pier 2 (DCT2) and Ngqura Container Terminal (NCT), the request for proposals (RFP) would close on February 23, 2023 and a final decision was expected by the end of the financial year.
The Richards Bay Liquefied Natural Gas via Transnet National Ports Authority (TNPA) had issued the RFP for the construction of an LNG terminal at the Port of Richards Bay, following a successful request for information (RFI) phase.
Meanwhile, Transnet Pipelines had started negotiating with their preferred partner on a joint development agreement enabling them to participate in the TNPA tender for the LNG terminal.
For Boegoebaai Port and Rail development, a request for a quote was issued, which closed at the end of November. Evaluations are under way.
Traxion Rail had been awarded a slot on the Kroonstad to East London line and was in the pilot phase of the process to sell slots to third party operators.
With regard to the Ngqura Manganese Export Terminal, the RFP for the financing and construction of the terminal was due to close in March, 2023 after which the preferred partner would be appointed.
Meanwhile, the feasibility for the 6 million ton expansion of the manganese line was due for completion at the end of the financial year, at which point a fast-tracked procurement process will commence.
Transnet Freight Rail and Transnet Port Terminals had commenced the procurement process to enter into long-term master service agreements for maintenance of locomotives and cranes.
“This will significantly improve reliability of these crucial assets and start the process of entrenching a maintenance culture in Transnet,” it said.
Transnet said financial results were reviewed by the auditor-general, who issued an unmodified review report with no material findings.
BUSINESS REPORT