| Wed 27 Jul 2022, 15:43 | | Transnet: Audited Annual Financial Statements for the financial year ended 31 March 2022 |
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Transnet: Audited Annual Financial Statements for the financial year ended 31 March 2022
Transnet SOC Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1990/000900/30)
Issuer Bond Code: BITRA
(“Transnet”, “the Company” or the “Issuer”)
TRANSNET RELEASES AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE
FINANCIAL YEAR ENDING 31 MARCH 2022 WITH AN UNQUALIFIED AUDIT
OPINION BY THE AUDITOR-GENERAL OF SOUTH AFRICA
Noteholders are advised that the Company’s unqualified audited annual financial statements
for the year ended 31 March 2022 have been published and are available on Transnet’s
website https://www.transnet.net/InvestorRelations/Pages/Annual-Results-2022.aspx.
The annual financial statements are available for inspection, at no charge, at the registered
office of Transnet, 138 Eloff Street, Braamfontein, Johannesburg,2000 and the offices of the
debt sponsor (Absa Corporate and Investment Bank (a division of Absa Bank Limited), 15 Alice
Lane, Sandton, from 09:00 to 16:00 on business days.
Transnet’s performance for the financial year ended 31 March 2022 exhibited aspects of
resilience and intrinsic improvement as the Company is focused on returning to pre-pandemic
performance levels.
Salient features of the financial performance compared to the prior financial year are as
follows:
• Revenue increased by 1,8% to R68,5 billion;
• EBITDA (Earnings before interest, taxation, depreciation and amortisation) improved
by 20,5% to R23,4 billion;
• Profit for the year is R5,0 billion from a loss of R8,7 billion in the prior year. The
significant increase in profits is mainly attributable to the improvement in the EBITDA,
a decrease in asset impairments and an increase in fair value adjustments related
mainly to investment property (IP);
• Cash generated from operations after working capital changes increased by 18,1%
to R29,1 billion; and
• Gearing and cash interest cover are within debt covenant requirements.
Performance overview
Group revenue for the year is higher than prior year mainly due to higher port and pipeline
volumes, in line with improved economic conditions, despite fire-related disruptions at the
ports, partially offset by lower rail volumes which were impacted by locomotive availability
challenges, cable theft, vandalism and adverse weather conditions.
Transnet is encouraged by the signs of improvements achieved thus far, and especially the
timeous release of this set of financial statements. It is recognized that significant efforts are
required to improve the performance of our Freight Rail, Engineering and Port operations.
EBITDA supported by improved net operating expenses
The net operating expenses are below prior year mainly due to cash preservation initiatives
implemented during the year, a reduction in impairments and provisions requirements as
well as a third-party settlement resulting in operating cost savings. The savings were
partially offset by the provision for voluntary severance packages and the increase in energy
costs in line with increased activity and prices during the financial year.
Investment Property Valuation
Fair value adjustments are a major contributor to the current financial performance of
Transnet.
Transnet measures its Investment Property (IP) at fair value in terms of IAS 40 Investment
Property. Due to the size and dynamics of the Transnet property portfolio, IP valuations are
conducted on a three-year cycle in terms of the Group accounting policy. The first year is a
formal valuation exercise performed in line with industry best practice and recognised
valuation methodology by independent valuation experts. The IP valuations for the remaining
two years are conducted internally by Transnet, applying a desktop valuation approach.
Negotiations with coal export parties
Transnet also appreciates the importance of improving the performance of our Freight Rail
operations. Therefore, Transnet has made significant progress towards concluding adjusted
long-term contracts with the Coal Export Parties (CEPs) following the notices issued in April
2022, based on persistent circumstances beyond our reasonable control. Most CEPs have
participated in good faith, and we have received sign-off from both major CEPs and all
emerging miners. We await the full cooperation from one major CEP and its affiliates.
Notwithstanding the notices issued in April 2022, Transnet has continued to provide transport
services for all CEPs while contract negotiations continue. Discussions on the new medium to
long-term contracts that will replace the current agreements which expire in March 2024, have
commenced with the CEPs who have signed the Deed of Amendment to the current contract.
Operational Outlook
While the first three months of the 2022/23 financial year have been characterised by further
challenges (KZN floods, theft and vandalism of infrastructure) the Group remains committed
to resolving operational constraints related to infrastructure, locomotives and security.
Transnet Freight Rail has recently embarked on a pilot project in partnership with the National
Defence Force to look at the deployment of additional security resources to help in securing
affected infrastructure. The Operating Division also continues to partner with customers on
security deployment on key corridors in order to clamp down on theft and minimise operational
disruption.
A number of key maintenance and infrastructure supplier contracts have been concluded
which will increase the efficiency of maintenance programmes. A significant amount of work
has been undertaken internally to improve procurement timeframes for key contracts which
have been a significant cause for delay in the past. The finalisation of major bulk materials
and on-track machine contracts has led to faster and more efficient resolution of historical
and new maintenance issues as they arise.
The locomotive procurement strategy is well underway and will be introduced to market soon.
Simultaneously, the Company is continuing to engage Original Equipment Manufacturers on
the provision of critical spares. Transnet Engineering will continue to find innovative
engineering solutions to the current shortage, with upgraded locomotives being redeployed
to different corridors to close the performance gap.
Restatement of prior year financial statements
The prior year financial statements have been restated due to the following:
• IP fair value error correction
In the current year, the Group performed an external valuation of IP and in assessing
the change in fair value for certain port related properties, identified an error relating
to the prior period fair value of these properties, which resulted in a decrease in fair
value of R416 million for the financial year ended 31 March 2021, and an additional
R807 million decrease in fair value in previous financial periods, with a corresponding
decrease in investment property; and
• Property plant and equipment capital work in progress (CWIP) impairment error
correction
In the current year, the Group performed an assessment of CWIP balances to ensure
the amounts are recoverable. Based on the assessment, management concluded there
was evidence available in the prior year that certain amounts included in CWIP should
have been impaired by R25 million for the financial year ended 31 March 2021, with
an additional R528 million impairment relating to previous financial periods and a
corresponding decrease in the CWIP balance.
Further details on the above two matters can be found in Note 39 of the annual financial
statements.
Audit opinion
The Auditor-General of South Africa, the Company’s independent statutory external auditor,
has expressed an unqualified audit opinion on the annual financial statements for the year
ended 31 March 2022.
This is a significant development from the history of qualified audit opinions received in the
past four financial years related to the completeness of irregular expenditure.
Johannesburg
27 July 2022
JSE Debt Sponsor
Absa Corporate and Investment Bank (a division of Absa Bank Limited)
Date: 27-07-2022 03:43:00
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