General freight helps grow Transnet revenue
Transnet's strategy to raise revenue by shifting more rail-friendly goods off the road into its wagons is yielding positive results. Faced with a trading environment characterised by a ravaging drought and dwindling commodity exports, the utility managed to increase revenue courtesy of a bullish fast-moving consumer goods (FMCG) sector.
SAR Connecta via Wikimedia Commons
Transnet, which is spending billions on improving SA's rail infrastructure, said revenue in the year to March increased by 1.7% to R62.2bn as container and automotive volumes in its general freight business climbed. Petrol volumes also improved.
The group bought 1,319 new locomotives and about 2,100 wagons, which CEO Siyabonga Gama said strengthened the group's position to compete for new business.
Earnings before interest, taxation, depreciation and amortisation (EBITDA), Transnet's key measure of profitability, increased by 2.6% to R26.3bn.
Fleet renewal facilitates FMCG line
The FMCG sector had become increasingly important for Transnet's future, Gama said. Of the R29.6bn Transnet spent on capital expenditure in the year under review, 61% was directed to general freight - the most important area of the utility's road to rail strategy. "The FMCG line is time sensitive. It requires speed and reliability. We think we can compete more effectively because of the renewal of our fleet," he said.
The upgrade of Transnet's City Deep terminal, situated south of Johannesburg, had reduced the time to Durban from 21 hours to 14 hours in the year under review, Gama said.
Competitive advantage on price
Transnet had also gained a competitive advantage on price. "Our price offering is between 25% to 35% below the cost of road transport," Gama said, adding that expected increases in fuel and diesel costs would create further price advantages for the state-owned entity.
Transnet, which is to soon build a factory in an undisclosed African country, said revenue from the continent grew 87% to R2.8bn.
In pursuit of growth
Jan Havenga, head of Stellenbosch University's Centre for Supply Chain Management, described as "brilliant" Transnet's performance for the year to March within the challenging economic backdrop. He said that Transnet's pursuit of growth in the container market and away from commodities was in keeping with international trends.
"The container market is recognised as the future for rail in any developed market," he said. Havenga said the FMCG offered better opportunities for growth over commodities as demand for processed foods was stable compared with demand for commodities, which was volatile.
The 2017 financial year will mark the fifth year of its infrastructure investment programme. Transnet will spend between R340bn and R380bn over the next 10 years in this programme. Gama said Transnet had put aside R22bn for its CapEx programme next year.
After raising about R40bn in capital markets last year, Gama said the group expected to raise only R8bn in 2017.
Its debt to equity ratio of 43.1% was still in line with its self-imposed ceiling of 50%, giving it sufficient headroom to raise more debt.
Source: Business Day
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