South Africa’s Transnet’s loss is getting smaller, but long-term economic questions still exist

Transnet, a South African freight rail and ports firm, reported a reduced deficit for the previous fiscal year and said on Friday that its turnaround program was beginning to show benefits, despite the auditor’s repeated doubts about its feasibility.

Africa’s largest economy has been held back for years by a small number of South African state firms, including Transnet, which posted a loss of 1.9 billion rand ($108.18 million) in the 12 months ending in March, compared to 7.3 billion rand the previous year.

Coal and iron ore shipments have been hindered by the group’s persistent underperformance, costing mineral exporters billions of rand in lost income. Companies compelled to reduce production include Kumba Iron Ore (KIOJ.J), which opens a new tab, and Thungela Resources (TGAJ.J), which exports thermal coal.

While net operating expenses dropped 4.9% to 52.1 billion rand, Transnet said that its revenue increased 7.8% to 82.7 billion rand.

Transnet’s major operational division, freight rail, had an improvement in hauled volumes to approximately 160 million metric tons, which was less than the 170 million-ton target but still up from 152 million tons the year before.

“The tide is starting to change. Volumes are stabilizing, losses are decreasing, and revenue is increasing. Michelle Phillips, the CEO, stated at a press conference that “the recovery’s foundations are taking hold.”

“Material uncertainty… on the entity’s ability to continue as a going concern,” the South African auditor general stated in a report on Transnet’s financial statements for the second consecutive year.

Credit rating downgrades, covenant violations, and the most recent financial loss were mentioned.

Transnet’s financing structure was deemed unsustainable without “extraordinary government support” by ratings agency S&P Global, which downgraded and opened a new tab on the company’s Rating in July.

The government has pledged billions of dollars in guarantees to help Transnet this year.

According to CEO Phillips, Transnet might have fallen behind on its debt in the absence of the guarantees.

Transnet stated that a key component of its goal would continue to be expanding private sector participation in the nation’s ports and rail system.

Its goal for the fiscal year that began in April is 180 million tons of rail traffic.