Transnet far from being financially and operationally sustainable despite ‘accounting profit’

Although Transnet is still being stabilised after widescale looting through sullied contracts during the State Capture years, it doesn’t yet have cash or a strong financial profile. This is despite pencilling in a profit and unqualified audit.
On the surface, it may seem that the operational and financial situation of Transnet is turning for the better after the state-owned freight, rail and logistics company faced a sustained period of decline, especially during the State Capture years.
In late July, Transnet published its annual financial results on time — a rare event in SA’s state-owned enterprise (SOE) universe. SOEs such as SAA, SA Express, SA Post Office, Land Bank, Denel and Armscor are repeat offenders, often missing key deadlines to publish their financial results and present them in Parliament as is required by law. This has left the government and providers of funding or debt in the dark about the financial performance of SOEs that are crucial for SA’s economy and development.
But in Transnet’s case, not only were its latest financial results published within four months of its new financial year, which ends in March 2023, but the company also provided a timely operational update to members of Parliament on 3 August.
At a financial level, Transnet’s numbers look good, suggesting that it has recovered from years of mismanagement, corruption, and the loss of its competitive edge.
Transnet swung to an R8-billion profit for the year to end-March 2022 from a financial loss of R5-billion a year ago. And for the first time in four years, Transnet’s financial books received an unqualified audit, which means that the Auditor-General thinks they are an accurate reflection of the company’s financial position. But there is an interesting accounting backstory to these two developments.
Creative accounting
Although Transnet is still being stabilised after widescale looting through sullied contracts during the State Capture years, it doesn’t yet have cash or a strong financial profile. This is something that Portia Derby, Transnet’s CEO of the past two years, repeated several times in Parliament.
About Transnet’s financial numbers themselves:
First, Transnet was able to pencil in a profit because during its recent financial period it reassessed the value of its property portfolio, comprising offices, shopping/retail amenities, and warehouses that it owns and leases to generate a rental income. With the help of independent property valuers, Transnet reassesses the value of its portfolio of properties every three years.
The value of Transnet’s properties, like many others around the ...