TRANSNET, the state-owned logistics, transport and infrastructure business, recorded declines in export volumes of nearly all the commodities it handles including coal which fell 5.5% in the 12 months ended March 31.
The declines were blamed on falling economic activity globally and in South Africa in which gross domestic product (GDP) grew by a meagre 0.6% during the last calendar year.
Speaking at the release of the company’s full-year figures in Johannesburg today, Siyabonga Gama, CEO of Transnet, said the company noticed “the wheels coming off the economy” in October which he termed ‘Red October’.
A total of 72.1 million tonnes (mt) of export coal was transported to ports in Transnet’s 2016 financial year, a decline of 6.5% from the previous year’s tonnage of 76.3mt.
Total iron ore and manganese volumes fell 3% year-on-year whilst there were also declines for mineral mining and chrome (-1%), steel and cement (-16%) and agricultural and bulk products (-13%).
Glencore was particularly active in cancelling coal trains, said Gama. The Swiss-headquartered mining and trading group put its Optimum Coal mine in Mpumalanga province into business rescue proceedings during the year.
Export iron ore volumes fell to 58mt from 59.7mt in the previous financial year with Kumba Iron Ore, the Anglo American listed subsidiary, identified as a major reason for lower exports as it cut volumes.
“Emerging and junior miners did not come to the party because of the depressed iron ore price,” said Gama. The iron ore price fell to below $40/t last year from highs of $140/t only three to four years ago.
The outcome for Transnet was a modest increase in earnings before interest, tax, depreciation and amortisation (EBITDA), described by Gama as Transnet’s key financial ratio, of some 2.6% compared to the previous financial year.
The return on total average assets fell to 3.7% from 6% previously, a clear indication of the effect of lower volumes set against the counter-cyclical nature of Transnet’s expenditure programme known as Market Demand Strategy (MDS).
Gama said that planned MDS expenditure over the next 10 years would be between R340bn to R380bn which would take total MDS expenditure over the period from when it started, four years ago, to just over R500bn.
However, there were some key deferrals in spending as Transnet sought to respond to lower economic activity including expenditure in the Waterberg in the Limpopo province where South Africa has significant coal reserves.
Some R12.1bn in expenditure had been deferred in iron ore expenditure in agreement with customers which Transnet describes as ‘validated demand’; in other words, agreed decreases.
However, some R15.7bn would be spent to improve the capacity of the iron ore export line to 60mtpa whilst R22.3bn would be spent on the coal line and infrastructure taking capacity to 81mtpa, said Gama.
From a debt management perspective, Transnet’s gearing (net debt to equity) increased to 43.1% compared to 40% gearing in the previous financial year. Total borrowings increased to R134.5bn from R110bn in the previous year.
If cash interest cover falls below 2.6%, Transnet runs the risk of breaking debt covenants with lenders, but at a current level of 3.1% (compared to 3.6% in previous year), Gama declared the company was comfortable with its indebtedness.
Coal volumes in Transnet’s 2016/17 finanical year would “be in the range of 75mt”, said Gama. “As a result of that we do have to then to re-look at what is the kind of capital investments we need to make,” he said.
Transnet would target the general freight market which he said offered it significant volume growth and would have the spin-off effect of making South Africa more competitive as it took market share from the more expensive trucking sector, said Garry Pita, CFO of Transnet.
