cellphone group MTN – since sold – and to investment property.
Second, there have been a number of revaluations that have bypassed the income statement and been taken directly to equity in terms of International Financial Reporting Standards (IFRS). Those relate largely to revaluation of port facilities but include a R4bn benefit as Transnet’s pension funds were restored to health (the two main funds were in surplus to the extent of R4bn at 31 March 2008. However, that’s not recognised, as the rules of the fund don’t provide for their distribution.
Consequently, Transnet now presents a much sounder balance sheet, with its gearing ratio down from 83% four years ago to the current 29%. Operating cash flows are also stronger. The cash position and gearing have been assisted by proceeds of some disposals – amounting to R10bn – as part of its turnaround strategy to focus on the core business of freight transport and logistics through rail freight, ports and pipelines. Removing SA Airways’ assets and liabilities from Transnet’s balance sheet also assisted, though there was no net cash flow to us (in fact, there was a net write-down of around R2bn on Transnet’s equity as a result).
While we’re the first to acknowledge we still have a long way to go to achieve our objectives, we recognise the leadership that’s brought us thus far, particularly the role played by CE Maria Ramos and chief financial officer Chris Wells. JUST OVER FOUR years ago Transnet was a struggling conglomerate with shareholders’ equity of just under R9bn and total debt of more than R60bn. As at 31 March 2008 its equity had risen to R51bn and net interest-bearing debt approximated R20bn – placing Transnet in a strong position to fund its R80bn capital expansion programme over the next five years off the strength of its balance sheet.
How has this come about? First, Transnet has increased profits steadily and retained them in the business rather than paying dividends to the State, its only shareholder. A big driver of improved earnings has been a combination of productivity improvements and focus on cost control. Over the past four years profits have amounted to around R23bn after paying tax of slightly more than R5bn. Within those profits are about R6bn resulting from the fair value adjustments relating to the indirect investment Transnet held in mobile