State-owned transport group Transnet has reported spectacular half-year results, with interim profit increasing 71% to R2.9-billion and investment unabated in infrastructure rejuvenation and expansion.

Cash generated from operations increased by 15% to more than R11-million and the outlook is for the current tempo to continue in the next six months.

Some 18 months after announcing a rigorous road-to-rail migration plan as part of its larger market demand strategy (MDS), Transnet has reported a robust 26% increase in the volumes of railed automotive and container freight for the six months ended September 30.

Total rail volumes for the half-year rose 2.4% to 105.8-million tons, of which 6.3-million tons were attributable to railed containers and automotive freight, 31.4-million tons to iron-ore and manganese and 41.9-million tons to coal.

“These results indicate that our road-to-rail strategy is bearing fruit,” CEO Brian Molefe said at the company’s interim results presentation, in Johannesburg, on Thursday.

“The performance in containers and automotive on rail far exceeds economic growth, confirming that we are winning both market share and the battle to shift rail-friendly cargo off our roads,” he noted.

The Transnet head further confirmed that the company was currently manufacturing seven dedicated automotive-bearing wagons a week to further improve volumes of rail freight from this sector.

“These wagons are being put into operation every week and we expect 350 to have been manufactured by the end of January,” he asserted.

Tracking the increase in total rail volumes, general freight volumes reflected similarly positive growth of 4.5% to 44.2-million tons for the six months, despite constrained customer production in the iron-ore sector and tippler challenges at export ports.

Molefe’s comments follow the ratification of memoranda of understanding with freight and logistics firms Imperial Logistics and Barloworld Logistics earlier this month, which would see greater effort to divert freight that is currently transported by road to a multimodal transport combination.

This strategy was supported by capital investment of R11.2-billion over the period – R5-billion of which was allocated to the expansion of infrastructure and equipment, while R6.2-billion was invested in maintaining current capacity.

“Of this, Transnet invested R2.1-billion in the maintenance and overhaul of locomotives and wagons, including the construction of 1 944 wagons over the six months as part of the MDS,” said Molefe.

In addition to these units, the first of 95 Class 20E electric locomotives for the general freight business was built in China over the period, and would be shipped to South Africa before the fiscal year-end.

Ten units would be manufactured and assembled in China, while the remaining 85 would be assembled at Transnet Engineering’s Koedoespoort plant.

The company’s R307.5-billion rolling seven-year investment programme was supported by a comprehensive funding strategy, which focused on raising cost-effective capital from a variety of sources.

Over the last six months, R9.4-billion was raised, of which R1-billion was sourced from commercial paper issuance; R1-billion from bank loans; R5.7-billion from domestic bonds; and R1.7-billion from the African Development Bank.

FINANCIAL PERFORMANCE

Despite a volatile trading environment, Transnet increased its revenue by 14.3% in the six months ended September 30, to R28.5-billion, driving profits higher by 71.2% to R2.9-billion.

The growth in income was driven primarily by the increase in containers and automotive on rail and buoyant mineral and chrome volumes, which increased by 12%.

The group’s key measure of profitability – earnings before interest, tax, depreciation and amortisation – improved by 19.3%, from R10.1-billion in the first half of the previous financial year, to R12-billion in the six months under review.

“We are improving profitability, despite a 10.9% increase in overall operating costs to R16.4-billion, which was driven by fuel, electricity and personnel costs. These were mitigated by our effective cost management strategy, which yielded a R1.4-billion saving,” Molefe noted.

Profit from operations after depreciation and amortisation increased by 39.9% to R7.2-billion during the first six months under review, while cash generated from operations rose 14.7% to R12.5-billion.