[TOP STORY] ‘Transnet has turned the corner’ as recovery gathers pace

0:00Money will be a big day for all your up-to-date stories. Now, TransNet today is reporting a return to profit for the year with revenue rising, freight rail volumes improving, and signs of recovery across parts of the port network. But the 4.6 billion round headline profit does include a substantial once-off gain from the Durban Gateway Terminal Transaction. Rail volumes do remain well below historic levels, debt and financing pressures remain significant, and the company is still dependent on government guarantees. So let's pull all of this together. Joining me is TransNet Group Chief Executive. Michelle Phillips, Michelle, welcome to you. Can you genuinely say that TransNet has turned a corner or have you simply stopped getting worse? Certainly, TransNet has turned a corner. Of course, the job is not done. We still have a lot to do. But I can say with confidence that TransNet has certainly turned a corner,

1:01the numbers speak for itself, in respect of volumes and what we've done over this past period, but also in respect of our revenue numbers and our profit. Rail volumes, Michelle, are improving, but they are still below 2021 levels. When does recovery do you think become a real success here? Recovery becomes a real success when we continue to get to the targets that we have set for ourselves. The 180 million, Danny, is quite critical. The number that TransNet needs to move. And the reason for that is because that's when we actually start making money out of the movement of volumes. Of course, even you continue to increase. However, up until such time, you will see the reason why we have to continue with our private sector participation projects. Because that obviously supports us while we are trying to get the business into a more sustainable position.

2:01180 million though is still the stretch, how confident are you and where do the risks still remain? Jeremy, we've done quite a bit of work this past year on the rehabilitation of the network. You'll see we will talk about the 23 billion ran that we've invested, particularly in the corridors. And we will continue to do that. We continue to do that work. And we have found that, as soon as we've completed with these annual shots, we see the volumes again moving in the right direction. Of course, we continue to be plagued by a theft and vandalism incidence of sabotage. People criminal is trying to destroy our network. But for the most part, I have to say, you know, the almost 50,000 transnators are working very hard to not only protect the network, to rehabilitate it and to make sure that we move those volumes. Let me pick up on theft and vandalism then as you raise it, still costing at Michelle Phillips TransNet more than 1.7 billion ran.

3:02Why is such a basic threat proving so difficult to beat? We run quite an expensive network. You'll see the round network is over 30,000 kilometers. It covers the length and breadth of the country. So it's quite an expensive and a big network that we have to cover. That being said, we make use, of course, of particularly private security companies. But we do have a country issue when it comes to crime. It's something that I think we only do work together to try and address. We spend quite a lot of money on securing this network. And I think we see the improvements, but certainly still a lot of work to be done to ensure that we stop this kind of behavior, because it more than translated impacts the livelihood of ordinary people of the country. Talking about bad behavior, almost 4 billion ran in reported irregular expenditure.

4:03More than 200 fraud investigations are still active. Michelle, why should South Africans believe the culture at TransNet is really changed? I think that if you speak to our customers, you speak to our service providers. You will hear that people are beginning to feel the difference. But I think more than that, you talk about the irregular expenditure. Now we have to take this in context. The regular expenditure that you speak about relates to multi-transactions that we pick up in the reporting financial year. Now we have seen, again, quite a reduction in fact in the irregular expenditure that we pick up in the current year. The more than 3 billion ran of irregular expenditure comes from previous years. But we still have to deal with it and you report it in the year in which you pick it up. Right now, TransNet is already all the way back into 2010 in terms of identification of irregular expenditure.

5:09As an organisation, we are continuing to put controls in place so that we do not incur further irregular expenditure for this year itself. The irregular expenditure is sitting in the 300 million ran. Still a lot, but when you compare two where we've come from in the billions of runs, I think there's been quite a bit of progress on the TransNet side. You talk about your customers feeling the difference. Are they actually experiencing a better service or is the improvement that you're outlining to me still mainly visible in your own numbers? I think the customers are absolutely feeling the difference. TransNet has really opened itself up a lot more to the engagement and the collaboration with our customers. We talk to them every day or the time. We have a number of in fact, customer-led solutions that we are continuing to implement in our business. And I think on the whole, you know, as far as even the culture within the organisation itself, there's a lot more understanding of the customer need and the customer requirement and the importance of meeting and exceeding the customer expectations.

6:21In that respect, you also say that ports I am proving yet reported container volumes have actually fallen. How do you reconcile that? Okay, so you know the number we need to take in context. Overall, in the system, the container numbers have not fallen. You must take into account that we have closed the DGT transaction. Now, for revenue purposes, you'll see that we report a TPPT number, which is the operator number. And that number looks like there's been a reduction. But in fact, it has not overall in the system, including the DGT number. We have actually increased container volumes from 2025 by 7%. So overall, we see container TUs moving upwards and we believe it will continue to move upwards. But compared to the prior year, the container volumes have actually increased by 7%.

7:25So for revenue purposes, we use the operator number. But for the system, we use the number as contained by the port authority in their numbers. And that number is 4.580 million TUs. So 7% is a huge improvement from the previous financial year. Having said that the operating costs up nearly 11% or costs undermining the recovery. You know, also, some one-safes. You recall that, I suppose, for the first three years, certainly, we've had provisions that we've had to provide for the net ref settlement that we entered into last year with the Sassal and Total energies. Now, whilst we released the provision in the previous financial year, in this financial year, we've had to pay the actual settlement. So real cash actually leaving the business. And that 5 billion rent thereabouts, I think, is probably the largest contributor to what we would say the cost.

8:36So it's not something that we will see moving forward. We have saved quite a bit in operating expenditure. But of course, the one source had to be dealt with. And that was part of the reason why the operating expenditure increased by that number. Just a final question. TranceNet is pinning a lot of its hope on private sector partners coming in. Is that because it's the best model or because TranceNet can no longer fix the system alone? I mean, you know, we've rolled out our reinvane for growth strategy. And in addition to that, government itself has approved the freight logistics roadmap. We understand that if TranceNet were to do this on its own, we probably would not extract the value that we would want for the country. And therefore, it is important that we partner. We partner because there are capital resources in the private sector. There are skills in the private sector.

9:39There are automation, digitization solutions that they can bring into our business. And that's why we partner. It is a deliberate strategy of ours that we employ in order to improve not only the TranceNet business, but the contribution that TranceNet is able to make to the country. So it's a deliberate strategy. And, you know, this is what the private sector does. And I don't think that, you know, there's anything wrong with government partnering with private sector in order to ensure that it extracts the best value for the country ultimately. The short Phillips is the Group Chief Executive at TranceNet.