Commodities slump puts Transnet off rail

270616 Transnet Chief Executive Siyabonga Gama presenting the company annual financial results at Esselen Park Ekurhuleni West of Johannesburg.photo :Simphiwe Mbokazi

270616 Transnet Chief Executive Siyabonga Gama presenting the company annual financial results at Esselen Park Ekurhuleni West of Johannesburg.photo :Simphiwe Mbokazi

Published Jun 28, 2016

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Johannesburg - Transnet bore the brunt of the low commodity prices as customers “downscaled” operations, leading to lower rail, coal export and iron ore export volumes in the year to March.

Read also: Transnet revenue gains on exports

In the past financial year, Transnet’s capital expenditure slowed down by 11.9 percent.

The expenditure declined from last year’s R33.6 billion to R29.6bn, which is in contrast to the steady annual increases the company has maintained since 2012.

Speaking at the release of the company’s results yesterday, chief executive Siyabonga Gama said the global economic slowdown had prompted Transnet’s key customers to defer their expansion, thus affecting the group’s own expansionary spend.

Gama said, as part of the group’s expenditure programme known as market demand strategy (MDS), Transnet planned to invest between R340bn and R380bn over the next 10 years. This would take the MDS spend to R500bn.

Transnet has changed the capital expenditure programme from the initial plan of R336bn over seven years.

In the past financial year, Transnet spent R29.6bn as part of MDS. This brings the total expenditure under the programme to R124bn.

Modernise

Through MDS, Transnet plans to expand and modernise South Africa’s ports, rail and pipelines infrastructure, resulting in increased iron ore, coal and manganese freight volumes.

Gama said export coal volumes declined by 5.5 percent, from 76.3 million tons to 72.1 million tons. He attributed the decline to, among others, the lower commodity prices, the placement of coal miner Optimum Coal on business rescue and power failures.

Transnet increased revenue by 1.7 percent, from R61.2bn in the same period last year to R62.2bn. The group attributed the revenue increase mainly to a 4.2 percent increase in rail containers and automotive volumes as Transnet continues to shift cargo from road to rail. A 1.4 percent increase in petroleum volumes also boosted the revenue, Transnet said.

Total coal and total iron ore and manganese volumes were down 7 percent and 3 percent, respectively. There were also lower volumes in mineral mining and chrome (1 percent), steel and cement (16 percent) and agriculture and bulk (13 percent). On the other hand, containers and automotive volumes increased by 4.2 percent.

Depressed

Export iron ore volumes decreased by 3 percent from last year’s 59.7 million tons to 58 million tons. “Emerging and junior miners did not come to the party because of the depressed commodity prices,” said Gama.

Commenting on Transnet’s funding plans, chief financial officer Garry Pita said the company would tap into the domestic bond market.

He said Transnet would also consider export credit finance and development finance loans.

With a gearing of 43.1 percent, Transnet said it had sufficient “headroom” to raise more debt in the capital markets. He said the company had secured most of the funding required for the current financial year.

Transnet added that it borrowed on the strength of its financial position.

In a statement last week, ratings agency S&P Global Ratings last week affirmed its rating for Transnet’s long-term foreign currency at BBB- and BBB+ for local currency.

S&P said it was optimistic that Transnet’s financial credit metrics would remain in line with the ratings agency’s assessment of the company’s stand-alone credit profile at BBB+ “even in a challenging economic environment”.

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