Transnet Online Integrated Report 2018

Market Demand Strategy (MDS) themes
  • Financial sustainability
  • Capacity creation and maintenance
  • Market segment competitiveness
  • Operational excellence
  • Human capital
  • Organisational readiness
  • Sound governance and ethics
  • Constructive stakeholder relations
  • Sustainable developmental outcomes
Sustainable Developmental Outcomes (SDOs)
  • Employment
  • Skills development
  • Industrial capability building
  • Investment leveraged
  • Regional integration
  • Transformation
  • Health and safety
  • Community development
  • Environmental stewardship
The Capitals
  • Financial Capital
  • Manufactured Capital
  • Intellectual Capital
  • Human Capital
  • Social and Relationship Capital

Our performance

Financial sustainability Financial sustainability

Transnet continues to perform above expectations in a slowrecovering economy, confirmed by a significant 18,0% increase in its key profitability measure, EBITDA. Despite the impediments associated with current market conditions, Transnet has continued to execute the Market Demand Strategy (MDS) through a dynamic management approach, holding steadfast to the key principles of its strategy. Improved operational efficiency and productivity lead to increased volumes in the rail and port businesses, supplemented by management‘s continued cost-management mindset, optimisation and the rephrasing of capital spend, all of which has resulted in Transnet achieving the current year’s impressive results.

Five-year review: Key profitability ratios and statistics

EBITDA
margin
%
41 42 43 44 45
Performance 2014 41,8
Performance 2015 41,8
Performance 2016 42,2
Performance 2017 42,1
Target 2018 41,5
Performance 2018 44,6
Target 2019 41,5
Gearing
%
35 40 45 50 55
Performance 2014 45,9
Performance 2015 40,0
Performance 2016 43,1
Performance 2017 44,2
Target 2018 <50,0
Performance 2018 43,4
Target 2019 <50,0
Cash
interest
cover
times
2 2.5 3 3.5 4
Performance 2014 3,7
Performance 2015 3,6
Performance 2016 3,1
Performance 2017 2,9
Target 2018 >2,5
Performance 2018 3,0
Target 2019 >2,5
ROTA Rail
operations
%
2 4 6 8 10
Performance 2014 9,7
Performance 2015 8,3
Performance 2016 3,0
Performance 2017 5,8
Target 2018 >5,2
Performance 2018 7,6
Target 2019 >5,2
ROTA Port
operations
%
4 7 10 13 16
Performance 2014 5,4
Performance 2015 7,9
Performance 2016 7,7
Performance 2017 13,6
Target 2018 >12,4
Performance 2018 15,3
Target 2019 >14,0
Real GDP
growth
%
0 0,5 1 1,5 2
Performance 2014 1,5
Performance 2015 1,4
Performance 2016 0,6
Performance 2017 0,7
Target 2018 0,7
Performance 2018 0,7
Target 2019 0,7

Commentary on key ratios

The gearing ratio decreased to 43,4% (2017: 44,2%). This level is below the Group’s target range of 50,0%, and is well below the triggers in loan covenants, reflecting the available capacity to continue with its investment strategy, aligned to validated market demand. The gearing ratio is not expected to exceed the target ratio over the medium term.

The cash interest cover ratio (excluding working capital changes) at 3,0 times (2017: 2,9 times) is in line with the internal target of 3,0 times, reflecting Transnet’s strong cash-generating capability. This is also significantly higher than the triggers in loan covenants.

Key

Improvement on prior year performance
Decline on prior year performance
Equivalent performance to prior year
Target achieved
Target partially achieved
Target not achieved

Income statement

for the year ended 31 March 2018

      Audited
(in R million)     31 March  
2018  
31 March  
2017  
Revenue   A   72 887   65 478  
Net operating expenses excluding depreciation and amortisation   B   (40 372)  (37 921) 
Profit from operations before depreciation, derecognition, amortisation and items listed below (EBITDA)  C   32 515   27 557  
Depreciation, derecognition and amortisation   D   (13 686)  (13 471) 
Profit from operations before items listed below:       18 829   14 086  
Impairment of assets   E   (1 442)  (2 538) 
Post-retirement benefit obligation expense       (268)  (243) 
Fair value adjustments   F   410    1 576  
Income from equity-accounted investees       9   20  
Profit from operations before net finance costs       17 538   12 901  
Finance costs   G   (10 211)  (9 045) 
Finance income       302   409  
Profit before tax       7 629   4 265  
Income tax expense   H   (2 778)  (1 500) 
Profit for the year       4 851   2 765  
A Revenue for the year increased by 11,3% to R72,9 billion (2017: R65,5 billion), driven by a 4,3% increase in railed export coals volumes and a 6,5% increase in railed automotive and container volumes. The respective increases were due to improved operational efficiency, attributable to the deployment of new-generation locomotives on the network, and growth in market share arising from a shift in rail-friendly cargo from road to rail. Port container volumes also increased by 6,1%.  
B Operating costs increased by 6,5% to R40,4 billion (2017: R37,9 billion), notwithstanding a 13,6% increase in fuel costs. Numerous cost-reduction initiatives implemented throughout the Company helped to limit the increase in operating costs, resulting in a R3,1 billion saving against planned costs. These initiatives included limiting overtime, reducing professional and consulting fees, rolling out programmes to measure condition-assessment versus time-based maintenance execution, and limiting discretionary costs relating to travel, accommodation, printing, stationery and telecommunications.  
C Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 18,0% to R32,5 billion (2017: R27,6 billion) with a resultant increase in the EBITDA margin to 44,6% (2017: 42,1%).  
D Depreciation, derecognition and amortisation of assets increased by 1,6% to R13,7 billion (2017: R13,5 billion), due to the revaluation of property, plant and equipment, partially offset by a significant decrease in derecognition costs. Accordingly, profit from operations after depreciation and amortisation increased by 33,7% to R18,8 billion (2017: R14,1 billion).  
E Impairment of assets, amounting to R1,4 billion (2017: R2,5 billion), is primarily due to the impairment of property, plant and equipment, resulting from derailments, as well as impairments of trade and other receivables.  
F Fair value adjustments amounted to a R410 million gain (2017: R1,6 billion gain). These adjustments are mainly due to investment property fair value gains, recognised in terms of IAS40 : Investment Property, partially offset by losses on credit valuation adjustments and credit contingent default swaps, in terms of IFRS 13: Fair Value Measurement and IAS 39: Financial Instruments: Recognition and Measurement.  
G Net finance costs increased by 14,7 % to R9,9 billion (2017: R8,6 billion) in line with expectations, due to the increased cost of borrowings. Capitalised borrowing costs amounted to R2,9 billion (2017: R3,9 billion).  
H The taxation charge of R2,8 billion (2017: R1,5 billion) is largely due to an increase in the deferred taxation, mainly from an increase in wear and tear allowances that are deductible for tax purposes. This was partially offset by the impact of the Company’s calculated taxation loss. The effective taxation rate for the Group is 36,4% (2017: 35,2%), which was impacted by expenses that are non-deductible for tax purposes.  


Statement of financial position

as at 31 March 2018

  Audited
(in R million)  31 March  
2018  
Restated  
31 March  
2017  
Assets      
Non-current assets   352 333   335 150  
Property, plant and equipment   335 488   313 431  
Investment properties   11 225   10 333  
Intangible assets   1 158   1 404  
Investments in equity-accounted investees   155   155  
Derivative financial assets   2 807   8 206  
Long-term loans and advances   19   20  
Other investments and long-term financial assets   1 481   1 601  
Current assets   17 490   17 989  
Inventories   3 282   3 354  
Trade and other receivables   9 088   7 768  
Derivative financial assets   49   3  
Other short-term investments   561   332  
Cash and cash equivalents   4 380*   6 422  
Assets classified as held-for-sale   130   110  
Total assets   369 823    353 139  
Equity and liabilities      
Capital and reserves   156 874   144 646  
Issued capital   12 661   12 661  
Reserves   144 213   131 985  
Non-current liabilities   158 036   168 954  
Employee benefits   2 854   2 624  
Long-term borrowings   93 593   111 026  
Derivative financial liabilities   2 430   1 938  
Long-term provisions   2 258   1 944  
Deferred tax liabilities   50 911   45 274  
Other non-current liabilities   5 990   6 148  
Current liabilities   54 913   39 539  
Trade payables and accruals   21 280   21 673  
Short-term borrowings   28 957   13 754  
Current tax liability   14   14  
Derivative financial liabilities   25   46  
Short-term provisions   1 059   914  
Other current liabilities   3 578   3 138  
Total equity and liabilities   369 823   353 139  
* Included in cash and cash equivalents are restricted Transnet Pipelines Rehabilitation Trust accounts amounting to R293 million.