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Transnet will hive SAA off to state

Published Aug 29, 2004

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Johannesburg - SAA, the loss making national carrier, would be moved out of Transnet and into a government department "in the short to medium term", Transnet chief executive Maria Ramos revealed on Friday.

The government would then seek an equity partner for the troubled airline.

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The plan to hive off SAA, which was technically insolvent in March, is part of a radical four-point turnaround plan aimed at resuscitating loss making transport parastatal Transnet.

Announcing a R6.3 billion pretax loss for the year to March, Ramos stressed that Transnet's core business was freight transport, which included rail and port infrastructure and operations as well as Petronet.

"Everything else is defined as non-core operations which will be housed in an investment portfolio for potential future sale or disinvestments," Ramos said.

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One analyst described the plans as the first step in what was likely to be a 100-mile trek.

He added that the major challenge facing Ramos and her new executive team was the fact that few people in the organisation knew how to manage in a commercial environment. "They've never had to deal with competition," the analyst said.

He was encouraged by the fact that Ramos's plans also included a proposal to cut back what she described as a "bloated head office", which cost R600 million to run in financial 2004.

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And in what is regarded as another radical move, Ramos said her total remuneration package for this financial year would be capped at R2.5 million. Neither she nor any of her executive team will receive a bonus for this year.

The four points of the turnaround plan are: redirecting the business; restructuring the balance sheet; implementing strict corporate governance principles; and adhering to a vigilant risk management process.

Transnet's results for financial 2004 were at the low end of everyone's poor expectations and reflect the need for radical and urgent action. Analysis of the figures is again complicated by the application of vigorous accounting policies relating to fair value and impairments.

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Group turnover for the year was up by only 6 percent to R43.6 billion and operating profit dived 96 percent to R187 million. After finance costs and fair value adjustments, this meagre profit plummeted to a R6.1 billion pretax loss.

Ramos did rather lamely point out that if all the impairments and adjustments were stripped out, "Transnet's earnings are around R2 billion", but even this figure was "not sufficient to ensure Transnet was sustainable into the future".

A breakdown of the group's divisional performance highlights the fact that getting shot of SAA will go a long way to improving Transnet's figures.

The group's aviation interests, which achieved no increase in turnover, reported an operating loss of R3.8 billion on turnover of R17 billion. After allowing for finance costs of R782 million and a "fair value" loss of R4.5 billion, the total damage at the aviation division was a loss of R8.9 billion. The R4.5 billion fair value loss is a non-cash item that relates to SAA's infamous hedge book.

However, what will be a cash item in the financial 2005 accounts is the R5.9 billion that Transnet paid to settle SAA's hedge book. The hedge book was fully settled by June 30 and so the cost will be included in the current year's figures.

Ramos cautioned against expectations of a "magical turnaround" being evident in the next set of results. "It will take time. The 2005 results will not necessarily reflect any impact from our new strategy."

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