South African transport utility Transnet on Tuesday reported its revenue rose 12.9 percent to R16.8-billion for the six months ended September 2008 compared to the same period last year as the state-owned company's focus on volume-driven revenue growth continues to pay off.

This comes amid the worsening economic environment caused by the unfolding global economic downturn.

The results also show that earnings before interest, tax, depreciation and amortisation (EBITDA) grew 6.8 percent to R6.6-billion despite an increase in operating costs of 17 percent mainly from personnel, energy and maintenance related costs.

Revenues increased across all five operating divisions, while volumes also increased in all of the operating divisions with the exception of Transnet Freight Rail.

The results show evidence of across-the-board increase in the volumes of containers railed and handled by TFR, Transnet National Ports Authority (TNPA) and Transnet Port Terminals, the company said.

Containerised traffic has been identified by Transnet in its Growth Strategy as one of the key drivers of growth as well as being important to reducing the cost of doing business in South Africa.

Consequently, the company is investing significant capital to upgrade and expand its container handling capability in rail and the ports.

In the review period, TFR's general freight business transported nine percent more containers than it did last year and growth in container volumes was the main driver of revenue increases at both TPT and TNPA.

The results also show significant progress in the roll-out of its five-year R80-billion capital expenditure programme.

In the review period, investment in capital grew 22.3 percent to R8.3-billion when compared to the same period in the preceding year. Transnet plans to spend a further R12.6-billion in the second half of the year which will bring total spending for the year to R20.9-billion.

The acceleration of the capital investment, continuing a two-year trend, is also evident in the increase in depreciation and amortisation change, which is in line with management's expectations, it said.

Commenting on the results, Transnet Group Chief Executive Maria Ramos said: "We are pleased with the success of our capital investment strategy which is reflected in the discernible shift in the bias of our spending towards activities that expand, instead of replacing, capacity for our clients. This means that our strategy to create appropriate capacity ahead of demand for our existing and prospective clients is being implemented".

The numbers show that of the R8.3-billion invested in capital, R4.4-billion – an increase of 58.3 percent on prior year's comparable numbers – had been spent in expanding capacity and the balance on replacing capacity.

Cash generated from operations decreased by 15.6 percent to R5.2-billion as a result of a R1.1-billion investment in working capital specifically to fund growth.

"Over the last two years, we have primarily used proceeds from the disposal of our non-core assets as well as our cash flows generated from operations to fund our infrastructure expenditure plan. As the capex programme intensifies, we will progressively use the debt capital markets for funding, relying on our considerably strengthened balance sheet to do so," said Ramos.

"Our gearing has risen to 32.5 percent which is well below our targeted range of less than 50 percent. This is indicative of the significant capacity we have to further tap the debt capital markets," she added.

Borrowings in the domestic market through the Domestic Medium Term Note (DMTN) programme will remain the main source of funding for Transnet. Transnet's funding strategy requires the group to diversify its funding sources to create opportunities for cost-effective funding in the future. Accordingly, an export credit agency umbrella facility is in place to enable funding for imports and a number of other initiatives in both the domestic and foreign markets are in progress.

"Whilst we remain confident of our ability to raise the required funding for our capital programme, the process has become much more difficult and of course interest rate spreads have widened", said Ramos.

The company has made known its plans to tap the debt capital markets to part-fund the R80-billion it plans to spend on expanding its existing ports, building new container handling facilities, building a new pipeline and buying in excess of 400 new and like-new locomotives over the next five years.

Operational improvements are continuing across the five business units.

While volumes railed on the iron-ore export line improved by five percent to 15.9 million tons (mt) and those moved on TFR's GFB held steady at 43.5 mt, volumes on the coal export line (from mines in Mpumalanga to Richards Bay port) decreased by six percent to 29.9 mt due to constraints such as infrastructure breakdowns and two big derailments at TFR.

NPA and TPT both performed well, growing revenues by 9.9 percent and 14.7 percent, respectively, driven mainly by container volumes, whilst Transnet Pipelines' revenue grew 26 percent to R757-million for the period, benefiting from increased volumes for all major products.

Fred Phaswana, the company's chairman, said: "The Board continues to assess the impact of the global economic environment on Transnet's business plans and will make necessary amendments to these plans if circumstances require these".

I-Net Bridge