Transnet pencils in net profit for 2025 if capital funding secured

TRANSNET has set out plans to return to profitability in the 2024/25 financial year, confirming the vertical separation of its largest division, Transnet Freight Rail (TFR), into operations and infrastructure management as part of a turnaround plan.

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TRANSNET has set out plans to return to profitability in the 2024/25 financial year, confirming the vertical separation of its largest division, Transnet Freight Rail (TFR), into operations and infrastructure management as part of a turnaround plan.

Key to achieving a turnaround, however, will be improvements in TFR’s overall annual trading volume and financing leverage. In a presentation today hosted by Transnet chairman Andile Sangqu, TFR needed R48.3bn in cash to meet its stretch targets of 170 million tonnes (Mt) and 193Mt of rail transport this year and in the 2024/25 financial year.

If this is achieved, Transnet will reduce its net debt to 2.3 times Ebitda, which would be below the current loan agreement, which is dangerously above the current debt/Ebitda ratio of more than four times.

But Transnet group managing director Michelle Phillips said the task was “massive”. Even if Transnet hits its baseline target of 154 million tonnes in 2023/24 (just up from 149.9 million tonnes last year), it will be a rare achievement as the group has not made any progress in the second half of the year for a decade. The first – indicates a previously ignored quantity.

Sanqu declined to say how much government funding his company needed but said it was crucial to exceed the turnaround plan. However, about R15-billion of debt maturing this year can be repaid from existing funds.

At a more realistic rail volume of 154 million tonnes this year, Transnet would still have to spend R17.9 billion in capital expenditure and end the year with a net loss of R4.34 billion.

Profit is targeted for next year at R724 million, but a stretch target of 170 million tonnes of rail traffic this year needs to be used as a base case for next year, illustrating the scale of the challenge.

Details of TFR’s reorganization into TFR Operating Company (TFROC) and TFR Infrastructure Management (TFRIM) will be set out in November’s draft network terms of use. The architecture of TFRIM, which includes rail access management and rail maintenance, will be completed this month. Therefore, train traffic will continue to use TFROC.

Transnet did not respond to media questions about whether the two companies operate independent boards and how independent they are from each other. It is encouraging, however, that Transnet’s turnaround does not include undelivered locomotives and spare parts from the Chinese company China Railway Construction Corporation (CRCC), which is in dispute with the South African government.

Public Enterprises Minister Praveen Gordhan recently visited China to resolve disputes related to corruption allegations in the government of former South African President Jacob Zuma.

Phillips said a decision on opening the TFR rail network to third-party private sector operators would be finalized by April next year. Sangqu said private sector investment related to TFRIM was “overcrowded”. There are no plans to privatize the rail network.

It is unclear how mining companies will obtain concessions to use bulk minerals. South32 chief executive Graham Kerr said earlier today that Transnet’s problems were easier to solve than Eskom’s, adding that it depended on funding.

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