Cost cutting boosts Transnet's profit even as freight volumes fall

The volume of commodities transported by state-owned freight rail and port group Transnet fell in 2019 due to a contraction in the mining sector and a weak economy, but "stringent" cost cutting means after-tax profit still rose by 25.5%.

The group posted after-tax profit of  R6.047bn for the year March 31, compared to R4.8bn in the year prior. Its tax bill declined 8.5% to R2.5bn. Revenue was up marginally to R74bn, from R72bn.

As South Africa's mining industry continued to struggle, Transnet freight volumes declined to 215.1 million tonnes, from 226.3 mt in the year prior. Revenue in the freight rail division - the group's largest business - decreased from R43.7bn in 2018 to R43.5bn in 2019.  Container volumes also dipped at ports. Volumes increased by 9.1% in the pipeline division as the inland multi product terminal reached full operationalisation

Mark Gregg-Macdonald, the group's acting chief financial officer, wrote in the group's integrated report that Transnet had produced "solid financial results in a challenging year".

The rise in profits was due to cost containment measures, he said. "Stringent cost-containment measures resulted in operating expenses being contained to R40.3 billion, which represents a R6.8 billion saving against planned costs."

Mohammed Mahomedy, Transnet's acting chief executive, promised a culture of "radical transparency" to combat the effects of years of corruption that had placed "monumental risks" on the SOE's finances.

In the past, Transnet had been "successfully manipulated to benefit a small group of individuals", said Mahomedy, and its new leadership needs to "say it as it is".

A plan to roll back corruption includes limiting the authority of individuals in signing off on procurement transactions, the implementation of end-to-end contracting systems, and boosting oversight.

Mahomedy said leadership needs to be "visible and accessible" which means meeting with and listening to the concerns of workers on the ground,

"Calls to ‘excellence’ and ‘customercentricity’ are meaningless if people feel unacknowledged, insecure and uncomfortable in their immediate surroundings."

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