Transnet results

[John Ashworth]

TRANSNET RESULTS
Railways Africa
Friday, 04 July 2008

Transnet's three-year turnaround strategy worked well to create a strong foundation for the parastatal's new four-point growth strategy, says Group Chief Executive Maria Ramos.

Briefing the media on Transnet's 2008 financial results on 29 June, she said an era of upheaval marked by low profitability was now part of the company's history.

When she came into the picture in 2004, Transnet was in trouble financially, strategically and operationally. The problems included huge debts and derivative liabilities resulting from unfavourable contracts for transporting various commodities; a R6 billion loss on South African Airways’ disastrous currency hedge and an estimated R6 billion deficit in Transnet’s Pension Fund.

Balance sheet correctional steps concentrated on disposing of non-core assets, improving cash flow and improved gearing.

Ramos explains that the four-point growth strategy is based on increasing volumes, improving customer service, creating capacity and optimising financial and capital management.

A focused freight logistics business has been establiished, efficiency has been improved, the head office has been restructured and an investment plan developed to create capacity.

In terms of risk management, internal controls have been improved, as has corporate governance. A human resources drive focuses on training and improving Transnet’s relationship with the unions.

The combination of volume growth, productivity and efficiency increased revenue 11,9% to R30.1 billion in the year to 31 March.

The growth was driven, she explains, by productivity improvements and cost-saving initiatives. "It is pleasing to see the benefits of the turnaround, especially as reflected in better asset utilisation which is behind the productivity improvements in action. We have ticked off all the boxes in the turnaround strategy - the results happened in the face of many challenges that the business has had to face during the financial year."

Shareholder's wealth grew to R51.2 billion over the same period, reflecting a 38.2% improvement on the preceding period, giving further proof to the financial strength of the company.

The rail division, which had been losing market share to road transport operators and whose gearing ratio had reached an unsustainably high level of 83%, appears to have stabilised, reflecting operational improvement. The aim in the current financial year is to grow freight rail business by 5.6%.

Ramos says Transnet is committed to maintaining its financial strength - one of the pillars of the growth strategy - by staying within the targeted gearing range of 50%. Much of the R80 billion available for capital expenditure is to be used to expand the company's infrastructure. About R33bn is to be used to sustain existing capacity, while R47m will be used to extend it.

"We are confident that we will achieve our growth plans in the next financial year through improving our building capacity. We are now firmly on the growth path," Ramos says.

Transnet chairman Fred Phaswana commended the executive team for successfully completing the turnaround strategy. "Considering the many challenges faced by the business, we are satisfied that we have the right team. More importantly, the success we're witnessing reflects the continued relevance of the strategic choices we've made”.