Transnet in red despite significant revenue growth

Transnet, South Africa’s state-owned ports and rail operator, reported a loss of R7.3 billion (US$414.6 million) for its financial year ending in March 2024, despite a significant increase in revenue.

The company announced on Monday that its revenue grew by 11.6% to R76.7 billion (US$4.26 billion). This increase was attributed to tariff hikes across its operations and higher volumes in its rail and container businesses, although it was partially offset by a decrease in pipeline volumes.

Total and Sasol case

The reported loss was largely due to a court ruling in June 2024, which ordered Transnet to pay just over R9 billion to Total and Sasol. These petroleum companies successfully argued that Transnet had overcharged them for transporting crude oil through its pipeline system, in breach of a 1991 contract.

Transnet was accused of not correctly applying an agreed formula, which led to this significant financial setback. The company has made a provision of R9.3 billion in its financial statements to account for the claim, interest, and legal fees. Transnet has appealed this decision and intends to pursue all legal remedies, with the execution of the Commercial Court’s judgement currently stayed.

Operational challenges and Recovery Plan

In its results statement, Transnet detailed the various operational challenges that impacted its performance. The company faced significant difficulties in its rail division, including collisions, community unrest on the coal line, equipment issues on the ore line, derailments, and power outages caused by Eskom. These factors, along with customer challenges in the coal and general freight business lines, contributed to lower rail volumes.

Additionally, a refinery shutdown in the first quarter led to reduced petroleum volumes.

Transnet acknowledged a slight improvement in its operating environment, particularly within the rail business, due to the Recovery Plan’s implementation. However, the company continued to face various challenges, including equipment availability issues, high levels of cable theft, and infrastructure vandalism, which all resulted in reduced rail volumes.

The company’s Recovery Plan aims to stabilise performance in the short to medium term and lay the groundwork for long-term sustainability. Over the past nine months, this plan has focused on addressing both operational and financial underperformance through a series of interventions over periods of 6, 12, and 18 months.

Financial performance overview

Despite many obstacles, last week Transnet managed to secure a R5 billion loan from the BRICS-backed New Development Bank, aiding its financial stability.

Transnet reported an EBITDA of R22 billion (US$1.23 billion) for the year, slightly below the previous year’s figure. Net finance costs rose by 14.8% to R13.8 billion (US$770 million), mainly due to the higher structural interest rate environment and increased borrowings.

Excluding the Natref provision, the net loss was R3.8 billion (US$213 million), compared to R5.1 billion (US$286 million) in 2023. An R4.8 billion (US$269 million) provision was made in connection with the Natref matter following the High Court judgement in June 2024.

Rail and ports

Transnet’s Freight Rail Division continues to play a significant role in the company’s overall performance, accounting for 40% of the group’s revenue. Additionally, the port container throughput increased from 4.034 million TEU to 4.152 million TEU.

No swift recovery

Transnet concluded its results statement by acknowledging that the recovery of an infrastructure company of its scale would not be swift, given the condition of equipment across the organisation.

However, the company expressed optimism about the future, citing strong and technically competent leadership that understands the business and its challenges.