Transnet’s turn­around

Finweek English Edition - - Letters - GE­OFF EVER­ING­HAM Transnet (Ever­ing­ham is a Pro­fes­sor of ac­count­ing at UCT and a non-ex­ec­u­tive and in­de­pen­dent di­rec­tor of Transnet, and is also chair­man of its au­dit com­mit­tee.) Let­ter short­ened - Ed

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

Maria Ramos

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