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TRANSNET SOC LIMITED - BITRA - Trading Update for Financial Year Ending 31 March 2022

Release Date: 13/05/2022 17:35
Wrap Text
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?)



TRADING UPDATE FOR THE FINANCIAL YEAR ENDING 31 MARCH 2022
Transnet expects to report improved financial performance for the financial year (FY) ended 31 March 2022, compared to the prior year, despite persistent challenges. The Company continues to be cash generative and service its debt obligations.
The audit for the year ended 31 March 2022 is in progress. Transnet?s update on its financial performance for the 12 months under audit has the following highlights: - Revenue increased by 1,6% to R68,3 billion;
- Earnings before interest, taxation, depreciation and amortisation (EBITDA) up by 22,1% to R23,8 billion;
- Net profit/(loss): Transnet is currently finalising the review of its real estate properties as part of the year-end process. The final figures will be shared in due course. Better performance than the prior year is expected in this regard;
- Cash generated from operations after working capital changes of R29,8 billion; and
- Gearing and cash interest cover levels are expected to be within debt covenant requirements.
Transnet?s operational performance for the year has been positive compared to the prior year. The improvement in petroleum and container volumes contributed positively to the operational performance of Transnet. However, the Company?s performance was negatively impacted primarily by its Transnet Freight Rail (TFR) operating division. Freight rail volume performance was hampered by a number of factors, including the following:
- In FY 20118 TFR achieved its best performance with a locomotive fleet of 2 215 locomotives. In the 2021/22 financial year TFR only had 1 656 locomotives (i.e. 25% less) significantly reducing TFR?s ability to move rail friendly volumes. The ability to access spare parts of certain locomotives has been jeopardised by the 1 064 review application and thus affecting the reliability and availability of locomotives.
- Although the review application and preservation as well as forfeiture application of the Special Investigation Unit (?SIU?) and Transnet regarding the 1 064 locomotive acquisition remain current, Transnet is progressing with just and equitable settlement negotiations with the relevant Original Equipment Manufacturers that may draw protracted litigation to a close and enable the rehabilitation of locomotives and security of supply;
- Approximately 15,7 million tonnes (mt) of freight volumes have been lost in the current financial year as a direct consequence of locomotive unavailability on the North Corridor alone;
- Security incidents mainly relating to cable theft and infrastructure vandalism also continued to contribute to performance challenges for the TFR business. Whilst much progress has been made in curbing fuel theft from the petroleum pipeline, more than 1 000 kilometres of cable have been stolen from our rail operations. This has resulted in more than R1,6 billion being spent on security and about R400 million on replacing stolen cables, with operational disruptions causing lost revenue estimated at R1,9 billion in TFR alone.
- To mitigate against the impact of security incidents, Transnet has entered into various collaborative initiatives with customers on the most affected corridors. The increased deployment of security resources has resulted in fewer incidents over the past few months. Although the incidents have been fewer, recent incidents have targeted critical points on the rail infrastructure to have maximum impact thus limiting the positive impact of implemented security interventions;
- Environmental factors including flooding, desert locust swarms and wash-aways of the rail tracks etc. continue to have a negative impact on operations, in particular affecting manganese and iron ore exports; and
- Increased temporary speed restrictions on the infrastructure network due to delayed maintenance and rail replacements that partly emanate from a restricted and prioritised capital investment budget as well as prioritisation of cargo trains over rail replacement trains.
Despite the above challenges, Transnet is continuously optimising its operational resources to improve its financial performance. This will also support the broader South African economy. Whilst some of the above challenges are expected to roll over to the next financial year, Transnet expects that the intensity thereof will be mitigated by a number of initiatives being implemented. Ongoing negotiations with Coal Export Parties
In April 2022, Transnet issued a notice to Coal Export Parties based on persistent circumstances beyond its reasonable control that impede its ability to fully meet its contractual obligations. Notwithstanding the notice issued, Transnet remains committed to working wit h the industry to find a contractual and commercial solution to this issue, in good faith negotiations. Progress has been made and we expect to close this matter amicably with affected parties and thereby reinstating the existing contracts. Transnet continues to provide transport services for the Richards Bay Coal Terminal (RBCT) export coal customers under its Standard Conditions of Carriage, while the parties continue with negotiations.
Exemption from specified provisions of the Public Finance Management Act (PFMA) and National Treasury Instruction Note No. 2 of 2019/20
On 31 March 2022 National Treasury granted an exemption from the specified provisions of the Treasury Regulations issued in terms of the Public Finance Management Act (PFMA) and National Treasury Instruction No. 2 of 2019/2020.
As a State Owned Company, Transnet is regulated by the PFMA which requires certain disclosures to be made in terms of paragraph 55 (2) (b) of the PFMA in the notes to its Annual Financial Statements (AFS). Such disclosures are not required in terms of International Financial Reporting Standards (IFRS) and have led to a modified audit opinion from FY 2018 to FY 2021.
The exemption affords Transnet the opportunity to deal with the legacy challenges in this area by focusing on the implementation of the remedial action plan and internal control measures in ensuring accurate and complete reporting of Irregular and Fruitless and Wasteful Expenditure.
The exemption allows Transnet to report Irregular and Fruitless and Wasteful Expenditure in the integrated annual report instead of the AFS effective from the financial year ended 31 March 2022 until 31 March 2024. This is a significant development that is expected to curb delays to the release of the AFS due to PFMA related matters.
Transnet appreciates the level of support received from the National Treasury and the Auditor -General of South Africa in this regard.
Procurement related exemptions expected to contribute to execution agility in the business
Effective 11 March 2022, the Minister of Finance exempted Transnet from the Preferential Procurement Policy Framework Act (PPPFA), 2000, and Preferential Procurement Regulations 2017 (PPR 2017) until new Regulations take effect, or the Constitutional Court confirms that the Supreme Court of Appeal order of invalidity regarding the PPR 2017 is suspended for 12 months.
Transnet?s Board of Directors confirmed that it will continue to apply the 80 /20 and 90/10 points preference system as anticipated in the Act but will not implement the invalid regulations until further determination.
Furthermore, effective 1 April 2022, the National Treasury PFMA Supply Chain Management (SCM) Instruction 03 of 2021/22, repealed the requirement of prior approval by the National Treasury related to deviations from normal bidding procedures and the expansion and variations of contracts. The repeal aligns with section 51(1)(iii) of the PFMA, confirming the authority and responsibility of the Board of Directors (?Accounting Authority?) to determine an appropriate procurement and provisioning system that is fair, equitable, transparent, competitive and cost-effective. Instruction 03 of 2021/22 improves Transnet?s procurement responsiveness to operational requirements.
Operational and financial performance guidance for the twelve months to 31 March 2022
Transnet expects to close FY 2022 with the following throughput from its operations: Export iron ore: 54,6 mt; Export coal: 58,3 mt; General freight: 60,2 mt;
Containers: 4,1 million TEUs (Twenty-foot Equivalent Units); and Petroleum: 15,35 billion litres.
As at 31 March 2022, Transnet had raised funding of R12,9 billion (excluding call loans) and is progressing with its refinancing initiatives that began in FY 2022 for the imminent debt capital redemptions in FY 2023.
During the closed period, Transnet may engage various stakeholders who may have interest an in financial information for different important purposes. Accordingly, Transnet hereby discloses the following high-level financial information as at 31 March 2022 for which the underlying detail may be shared with interested key stakeholders.
Financial information extracts 12 months
to
31 March
2022
Rand
million Extracts from the income statement
Revenue 68 316
Net operating expenditure (44 549)
EBITDA 23 767
Depreciation, derecognition and amortisation (14 983)
Impairment of assets (2 262)
Finance costs (10 613)
Finance income 114 Extracts from the statement of financial position
Non-current assets 321 957
Current assets 16 839
Total equity 130 796
Non-current liabilities 149 077
Current liabilities 58 923 Extracts from the statement of cash flows
Cash flows utilised in investing activities (13 236)
Changes in working capital 3 587
Borrowings raised* 18 478
Borrowings repaid* (20 062) *Includes call loans on a net basis.
Impact of adverse weather and flooding in KwaZulu-Natal Province on Transnet?s operations
In the month of April 2022, most parts of KwaZulu-Natal experienced extreme storms and heavy rainfall which led to widespread disruptions and regrettably a loss of lives. Transnet was not spared and the immediate focus was to ensure the safety of people, and the reinstatement of operations. Notable damages to assets are in Transnet Freight Rail, Transnet Engineering, Transnet National Ports Authority and Transnet Property.
The estimated financial impact is under assessment and will be accounted for in FY 2023. Further details will be provided to Noteholders once the financial impact of the adverse weather and flooding in KwaZulu-Natal province has been finalised or determined with a greater degree of certainty.
This announcement contains forward-looking information which by its very nature could be subject to change. Furthermore, the financial information in this announcement and on which this trading update is based has not been audited, reviewed or otherwise reported on by the Company?s external auditors. Johannesburg 13 May 2022 JSE Debt Sponsor
Absa Corporate and Investment Bank (a division of Absa Bank Limited) Date: 13-05-2022 05:35:00
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