Transnet could stage one of the greatest turnarounds in business history

Is Transnet’s financial situation finally turning around, with the new management arresting the billions of rands in losses incurred over the past few years?

Preliminary and unaudited data suggest that Transnet is set to announce an improvement in the performance of its logistics operations when it tables its 2023/24 financial statements in August 2024. Intriguingly, Transnet is also not expected to be in a loss-making financial position.

There are also early talks within Transnet corridors that the state-owned enterprise (SOE) might return to profitability in 2025. The last time Transnet turned a profit was in 2022 when a financial gain of R5-billion was recorded.

However, 2023 was an abysmal year for Transnet, with Portia Derby presenting her last set of results as CEO, in which the SOE unveiled a loss of R5.7-billion, mainly due to inefficiencies of its freight rail network. 

Read more in Daily Maverick: Transnet swings into a R5.7-billion financial loss as Freight Rail division battles export crunch

Daily Maverick understands that Transnet — led by new CEO Michelle Phillips — is on track to reverse this loss position. A spokesperson for Transnet declined to comment on the company’s preliminary financial position, only telling Daily Maverick that it was in a close period and its financial books were being audited, preventing it from providing detailed commentary.

Two big developments in recent months are responsible for Transnet possibly staging one of the greatest turnarounds in business history.

First, management at Transnet seems to have a renewed commitment to fix the company’s underperforming freight rail and port operations. Second, with a smothering debt load of more than R100-billion on its books, Transnet is increasingly deferring immediate debt and interest repayments to a later period, momentarily giving it more breathing room.

Early recovery in rail and port activity

Transnet mainly generates revenue from charging industry customers for moving their goods such as iron ore, coal, agricultural produce and automotive parts to markets through its rail and port networks. The more goods Transnet moves, the more money it can generate from customers.

Preliminary and unaudited figures, released by Transnet at a media briefing in April, show that during its 2023/24 financial year the company expects its revenue to increase by as much as 12%. Transnet did not offer revenue numbers in rand terms, but the entity usually generates revenue of more than R60-billion a year.

The preliminary figures also show that on its freight rail network, Transnet moved 151.7 million tonnes (Mt) of goods for the 2023/24 financial year, which represents a 1.5% increase from the 149.45Mt moved during the previous year. Volumes have continuously declined from a peak of more than 200Mt a year in 2019 owing to mismanagement of the rail system, vandalism and the theft of copper cables. 

On its port operation across South Africa, Transnet handled 4.15 million TEUs (20-foot equivalent units, a measure of trade volumes at container ports) in 2023/24, which was 2.2% more than the previous year. 

Although there has been an increase in rail volumes and TEUs, both are still below the targets set in Transnet’s recovery plan. 

Read more in Daily Maverick: Transnet’s turnaround plan is premised on securing a R100bn ‘capital injection’ from government

The plan commits Transnet to achieving rail volumes of 154.4Mt in the 2023/24 financial year, but the SOE achieved 151.7Mt, which is 1.7% lower than its target. A similar trend played out at Transnet ports.

At the same briefing in April, Phillips said the improvement in rail volumes (even though they were below self-imposed targets) was attributed to Transnet upgrading ageing freight rail equipment and making more locomotives available to service customers. 

The same efficiency-improvement initiatives are being implemented at Transnet’s port operations, especially with the upgrade of equipment, including ship-to-shore cranes, ship loaders and unloaders, mobile harbour cranes, trailers and haulers. 

Read more in Daily Maverick: Abysmal ranking of Transnet ports underscores long haul to fix key logistics operations and infrastructure

A Transnet customer told Daily Maverick: “There is a sense of urgency to fix problems at Transnet, especially on the rail operations. And Transnet is increasingly asking the private sector for help when it cannot fix problems.”  

Kicking the debt problem down the road

Like Eskom, Transnet has a debt problem and is increasingly at risk of defaulting on debt repayments.

Read more in Daily Maverick: Eskom posts record R23.9bn financial loss

At last count on an annual basis, Transnet had a debt of R130.1-billion, on which it pays interest of R1-billion every month. Debt and interest repayments wipe out a chunk of the revenue that Transnet generates, putting it in a loss-making position.

In recent months, Transnet has asked lenders for a further reprieve on a big chunk of debt that becomes due to avoid a messy default and potential bankruptcy. It did so in March, when it asked lenders to roll over debt repayments of more than R6-billion to a later period. 

In finance lingo, Transnet “refinanced” the debt that became due, meaning that it applied for new debt and used it to replace existing/outstanding debt while negotiating new repayment terms. Although refinancing a big portion of the debt has bought Transnet more time to pay off debt at a later stage, the company will now face higher repayment costs on new debt, given that interest rates have risen dramatically over the past year.

Transnet has debt worth more than R20-billion to settle between calendar years 2024 and 2025, with even bigger debt to settle after that. Asked at a recent media briefing how Transnet planned to deal with upcoming debt redemptions due in 2024, Andre Pillay, the group treasurer, said the SOE would tap into its “normal funding programme”. This infers that Transnet will approach the debt market and lenders to ask for another grace period. DM