ANNUAL FINANCIAL STATEMENTS 2022
www.transnet.net
The 2022 Integrated Report
is the Company’s primary
report to all stakeholders.
ANNUAL FINANCIAL STATEMENTS 2022
The 2022 Annual Financial
Statements include reports
of the directors and
independent auditor
Forward-looking information
All references to forward-looking information and targets in
the 2022 reports are extracted from the 2022/23 Transnet
Corporate Plan and approved by the Board of Directors
Feedback on this report
We welcome feedback on our 2022 annual financial statements.
Please provide written feedback to Kilford Gondo at
Kilford.Gondo@transnet.net.
Contents
2
Performance highlights
4
Approval of the annual financial statements
5
Group Company Secretary certificate
6
Report of the auditor-general
16
Audit Committee report
20
Report of the directors
Annual financial statements
28
Accounting policies
48
Income statements
49
Statements of comprehensive income
50
Disclosure of components of other comprehensive income
51
Statements of financial position
52
Statements of changes in equity
53
Statements of cash flows
54
Segment information
58
Notes to the annual financial statements
123
Abbreviations and acronyms
124
Glossary of terms
IBCCorporate information
1
Annual financial statements
Performance highlights
Performance
highlights
Revenue increased by 1,8% to R68,5 billion, in line with increased petroleum and
container volumes due mainly to improved economic conditions.
Net operating expenses decreased by 5,9% to R45,0 billion, due mainly to the
impact of the third-party settlement received partially offset by the provision for voluntary
severance packages.
EBITDA increased by 20,5% to R23,4 billion, with the EBITDA margin increasing to 34,3%.
Net profit for the year of R5,0 billion (2021: R8,7 billion loss).
Capital investment decreased by 16,8% to R13,2 billion for the year.
Cash generated from operations after working capital changes increased by 18,1%
to R29,1 billion.
Gearing of 45,5% and cash interest cover* at 2,6 times, both within loan covenant
requirements.
Revenue (R million)EBITDA (R million)
72 887
74 070
75 167
67 273
68 459
32 515
33 750
34 004
19 460
23 449
80000
35 000
70000
30 000
60000
25 000
50000
20 000
40000
15 000
30000
10 000
20000
10000
5 000
0
0
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
44,5
43,8
47,1
49,0
45,5
21 781
17 941
18 561
15 916
13 240
50
25 000
40
20 000
30
15 000
20
10 000
10
5 000
0
0
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
1,6% of labour costs spent on training, focusing on artisans, engineers, and
engineering technicians.
LTIFR performance of 0,69%, which is below that of the tolerance of 0,75%.
B-BBEE spend of R29,2 billion or 99,8%, of total measured procurement
spend, as defined by DTIC codes.
Cash interest cover* (times)
2,8
2,7
2,7
2,1
2,6
4
3
2
1
0
2018
2019
2020
2021
2022
Net profit/(loss) for the year (R million)
4 851
6 047
2 892
(8 734)
5 048
8 000
6 000
4 000
2 000
0
-2 000
-4 000
-6 000
-8 000
-10 000
2018
2019
2020
2021
2022
* Including working capital changes.
* Including working capital changes.
23
Annual financial statements
Approval of the annual financial statements
Approval of the annual financial statementsfor the year ended 31 March 2022
Group Company Secretary certificatefor the year ended 31 March 2022
Directors’ responsibilities
The Board of Directors (Board) is required by the Companies Act,
No 71 of 2008 of South Africa (Companies Act) and the Public
Finance Management Act, No 1 of 1999 (PFMA) to prepare annual
financial statements which fairly present the state of affairs of
Transnet SOC Ltd (Transnet or the Company) and its subsidiaries
(the Group) as at the end of the financial year, as well as the profit or
loss and cash flows of the Company and the Group for the financial
year then ended.
In preparing these annual financial statements, the directors
are required to:
•
Select suitable accounting policies and apply them consistently;
•
Make judgements and estimates that are reasonable and prudent;
•
State whether applicable accounting standards have been
followed; and
•
Prepare the annual financial statements on the going-concern
basis unless it is inappropriate to presume that the Company
and/or the Group will continue in business for the foreseeable
future.
The Board is responsible for the maintenance of adequate
accounting records, maintenance of appropriate systems of internal
control, as well as the preparation and integrity of the annual
financial statements and related information.
Directors’ statements
The internal audit activities undertaken during the year are in
accordance with the internal audit plan approved by the Audit
Committee. Transnet internal audit has executed the internal audit
plan during the year and has provided assurance to the Board as to
the state of the internal controls of the Company. Their assessment
of the internal controls of the Company is included in the
Audit Committee report.
The Audit Committee has evaluated the Company and Group
annual financial statements and has recommended their approval
to the Board. In preparing the Company and Group annual financial
statements, the Company and the Group have complied with
International Financial Reporting Standards (IFRS) and the
Companies Act. In addition, the Group has complied with the
reporting requirements of the PFMA, as set out in the report of the
directors on pages 22 to 23. The Group has used appropriate
accounting policies supported by reasonable and prudent
judgements and estimates. Judgements and estimates made in the
application of IFRS, that have a significant impact on the annual
financial statements, are disclosed where applicable in the
accounting policies and notes to the annual financial statements.
The Board has every reason to believe that the Company and
Group have adequate resources and facilities in place to be able to
continue in operation for the foreseeable future. Therefore, the
Board is satisfied that Transnet is a going concern and has
continued to adopt the going-concern basis in preparing the annual
financial statements.
The external auditors, the AGSA, are responsible for independently
auditing and reporting on the annual financial statements in
conformity with International Standards on Auditing (ISA). Their audit
report on the annual financial statements, prepared in terms of the
Public Audit Act of South Africa, No 25 of 2004, appears on pages 6
to 15.
The Board is of the opinion that the Company and the Group
have complied with applicable laws and regulations except as
disclosed in the report of the directors as set out on pages 22 to
23.
The Board is of the opinion that these annual financial statements
fairly present the financial position of the Company and the Group as
at
31 March 2022, and the results of their operations and cash flow
information for the year then ended. The annual financial
statements have been prepared under the supervision of the
Group Chief Executive.
Statement in terms of Article 3(2)(c)
of the Transparency Law of 2008
Management declares that, to the best of their knowledge, the
consolidated and separate annual financial statements have been
prepared in accordance with IFRS and give a true and fair view of
the assets, liabilities, financial position and profit or loss of
Transnet. The 31 March 2022 annual financial statements and
integrated report includes a fair review of the development and
performance of the business and the position of Transnet, together
with a description of the principal risks and uncertainties that
Transnet faces.
PS Molefe
Chairperson
PPJ Derby
Group Chief Executive
NS Dlamini
Group Chief Financial Officer
25 July 2022
Johannesburg
I hereby certify that in terms of section 88(2)(e) of the Companies
Act, the Company has filed with the Companies and Intellectual
Property Commission all such returns and notices for the year ended
31 March 2022, as required in terms of this Act, and that all such
returns are true, correct and up to date.
S Bopape
Group Company Secretary
25 July 2022
Johannesburg
45
Annual financial statements
Independent auditor’s report
Report of the auditor-general to Parliament on
Report on the audit of the
consolidated and separate financial
statements
Basis for opinion
I conducted my audit in accordance with the International Standards on
Auditing (ISAs). My responsibilities under those standards are further
Key audit matterHow the matter was addressed in the audit
Valuation of investment property
Opinion
I have audited the consolidated and separate financial statements
of Transnet SOC Limited (Transnet) and its subsidiaries (the
Group) set out on pages 28 to 122, which comprise the
consolidated and separate statements of financial position as at 31
March 2022, the consolidated and separate statements of profit or
loss and other comprehensive income, statements of changes in
equity, and statements of cash flows for the year then ended, as
well as notes to the consolidated and separate financial
statements, including a summary of significant accounting policies.
In my opinion, the consolidated and separate financial statements
described in the auditor-general’s responsibilities for the audit of the
consolidated and separate financial statements section of my report.
I am independent of the Group in accordance with the International
Ethics Standards Board for Accountants’ International code of ethics for
professional accountants (including International Independence
Standards) (IESBA code) as well as other ethical requirements that are
relevant to my audit in South Africa. I have fulfilled my other ethical
responsibilities in accordance with these requirements and the IESBA
code.
I believe that the audit evidence I have obtained is sufficient and
appropriate to provide a basis for my opinion.
Key audit matters
Transnet’s investment property, as disclosed in note 10, is valued
at R29 112 million as at 31 March 2022 (2021: R16 506 million.
There was a significant movement of R9 814 million in the
account balance relating to fair value adjustments recognised in
the income statement, which contributed to the profit for the year
of R5 048 million (Company: R5 055 million).
The fair value of the Group’s investment properties at
31 March 2022 was arrived at on the basis of valuations carried
out by independent external property valuers. The fair value was
derived by capitalising the normalised net annual income at
market derived capitalisation rates, which are adjusted where
appropriate, to reflect the risk profile of each individual property.
•
I obtained and documented an understanding of
relevant controls in relation to the valuation process.
•
I appointed two independent experts who discussed and
challenged key inputs and assumptions with management
expert/valuers and management with reference to independent
market data including COVID-19 considerations.
•
I assessed the independent valuation experts’
competence, experience, qualifications and independence.
•
I read the valuation reports for the properties valued by the
independent external valuation experts and confirmed the
valuation approach was in accordance with IFRS and suitable
for use in determining the fair value for the purpose of the
consolidated and separate financial statements.
present fairly, in all material respects, the financial position of
Transnet and the Group as at 31 March 2022, and their financial
performance and cash flows for the year then ended in
accordance with the International Financial Reporting Standards
(IFRS) and the requirements of the Public Finance Management
Act 1 of 1999 (PFMA) and the Companies Act 71 of 2008
(Companies Act).
Key audit matters are those matters that, in my professional
judgement, were most significant during my audit of the
consolidated and separate financial statements for the current
period. These matters were addressed in the context of my audit of
the consolidated and separate financial statements as a whole and
in forming my opinion, and I do not provide a separate opinion on
these matters.
The key inputs into the fair value model which are subject to
significant management estimates include market rentals, market
yields, vacancy rates, the credit-worthiness of tenants, as well as
discount and capitalisation rates used in the discounted cash
flows.
Unsubstantiated assumptions and estimates could give rise to a
material misstatement.
Management is required to make a number of significant
assumptions and judgements in determining the fair value and
therefore I have identified this as a potential risk.
Due to the high level of estimation and uncertainty regarding the
valuation of investment properties, I have spent significant audit
effort, including the time spent by senior members of the audit
team, in auditing the valuation performed and the reasonableness
of conclusions reached and fair value adjustments passed.
•
I confirmed that the valuation approach used by
management was appropriate for the determination of fair
value in the consolidated and separate financial statements.
In addition,
I satisfied myself that the techniques used by the independent
experts and management have been applied consistently.
I agreed a sample of investment property fair values, valued by
the independent valuation experts, to the underlying
independent valuation experts reports.
•
I tested the key assumptions used in determining fair value in
respect of both the independent experts’ valuation and the
valuation performed by management as follows:
– confirmed rental income used in forecasts agreed to
underlying tenant contracts for reasonability; and
– assessed the reasonability of the discount and capitalisation
rates used to available industry data for similar investment
properties.
•
I assessed the reasonableness and accuracy of the
apportionment between owner-occupied properties and those
leased to external parties.
•
I assessed whether the disclosures in the financial statements
are appropriate and in accordance with IFRS 13 Fair value
measurement; and IAS 40 Investment properties.
67
Annual financial statements
Independent auditor’s report
Report of the auditor-general to Parliament on
for the year ended 31 March 2022
Key audit matterHow the matter was addressed in the audit
Revaluation of port facilities
Rail infrastructure is measured using the revaluation methods as
described in note 9 to the financial statements.
For the rail infrastructure, the discounted cash flow (DCF)
calculations at cash generating unit (CGU) level were
performed by management for these assets in order to
determine the fair values of the infrastructure assets. These
values represent the future cash flows of Transnet Freight Rail
(TFR), discounted at the prevailing after tax weighted average
cost of capital (WACC) rate.
Management’s estimates as related to future cash flows include
significant judgements and assumptions related to:
•
Rail volumes and tariffs;
•
Inflation rate;
•
GDP rates;
•
Projection of cash flows beyond the foreseeable future; and
•
Estimates of operating expenditure that are based on
management’s corporate plans.
This area was significant to my audit due to the materiality of the
carrying amount of the assets to which the revaluation
adjustments have been allocated. Given the magnitude of the
amounts involved, an error in significant assumptions could result
in a material impairment or reversal of impairment.
• I used valuations expertise to assess the integrity of the DCF
models which included assessing the appropriateness of the
valuation model used by management, by comparing these to
industry norms and acceptable valuation methodologies. I found
that this was consistent with industry norms and an acceptable
valuation methodology;
• I benchmarked management’s significant assumptions related to
economic factors such as forecasted GDP rates and inflation
rates, used in the calculations against independent third-party
data. Based on the work performed, I accepted management’s
assumptions as appropriate;
• I assessed the reasonableness of the projected volumes to be
railed, expected future tariff increases, the current capacity of
the infrastructure networks, projected future sustainable
capital expenditure to maintain the current capacity and the
terminal growth rate to achieve the current network capacity;
• I re-computed the discount rates, taking into account
independently obtained data to ensure that the discount rates
were within an acceptable range;
• I assessed and evaluated management’s basis for the
assumptions used. For the planning process, I compared the
previous years corporate plans to the actuals for the same year
in order to determine the reasonableness of future projected
periods. This was done to exclude the impact of COVID-19 by
using a year that would indicate sustainable capital expenditure
and operating expenditure; and
The port facilities in the ports are measured at revalued amounts
in accordance with the accounting policy, which is consistent with
IAS 16.
A full revaluation of all port facilities is performed every 3 year
cycle – the previous valuation was performed in March 2021 – for
the current year under review an index revaluation was performed.
The Group applies the following valuation techniques in revaluing
these assets:
•
Depreciated optimised replacement cost (DORC); and
•
DCF.
The DCF value was used as the most appropriate point to reflect
the fair value of the port infrastructure assets. This entails
assumptions using projected revenues, capital growth, volume
growth factor, CPI and other variables.
Due to the variables used in the model, which are complex and
subjective with a high degree of judgement the revaluation of port
facilities was assessed to be a key audit matter.
I performed the following procedures, especially on the significant
management assumptions used in the DCF model:
An auditor’s expert was used to assess the reasonability of the
DCF model, the assumptions used and the economic inputs into
the model.
•
For future cash flows I evaluated all the different elements that
make up the cash flows, including revenue, operating expenses
and capital expenditure. An in depth understanding of the
budget process was obtained and actual results for the current
year was compared to the forecasts, approved budgets and
corporate plans were considered. The reasonability of the
volume growth and tariff increases, increases in operating
expenses was assessed against economic indicators and tariff
increases as communicated by the Regulator, taking into
account the sustaining capital expenditure and the capacity of
the port infrastructure. Furthermore, considering historic trends
and future prospects within the industry.
•
Terminal value: The terminal growth rate was a key element
assessed by the auditor’s expert and was compared to
market growth indicators, assessing assumptions and inputs
like CPI, GDP and terminal capacity.
•
Discount rate (WACC): The expertise of a financial expert
was obtained together with those of the treasury audit team
to assess the reasonability of the WACC rate.
• I evaluated the presentation and disclosures in the financial
statements, including significant accounting policies.
Property, plant and equipment – Island View (TM1) and Jameson Park (TM2) assets verification
These assets predominantly consist of assets which were
• Through integration with auditors expert within the AGSA
Revaluation – pipeline network assets
capitalised as part of the new multi-product pipeline (NMPP)
project which mainly impact TM1 and TM2 terminals valued at
performance audit unit, I obtained the site layout plans,
technical drawings and asset capitalisation schedule supporting
Pipeline network assets are measured using the revaluation
model as described in the accounting policy. Formal revaluations
are performed every three years by independent professional
valuation experts and indices are applied in the intervening
periods where appropriate, such that the carrying value does not
differ materially from that which would be determined using fair
values at the end of the reporting period.
The Group applies the following valuation techniques in revaluing
these assets:
•
Depreciated replacement cost (DRC); and
•
DCF.
For the financial year ended 31 March 2022, the revaluation
index is used. The depreciated replacement cost was used as
the most appropriate point to reflect the fair value of the pipeline
network assets.
The matter was assessed as key due to the significant risk in
relation to the significant assumptions and judgment applied.
•
I obtained and documented an understanding of relevant
controls in relation to the pipeline network assets.
•
I assessed management expert’s competence,
experience, qualifications.
•
I documented the audit approach which included the utilisation
of an auditor’s expert to audit the depreciated replacement cost
model and the discounted cash flow model
•
I utilised the services of an auditor’s expert to assess the
reasonableness and appropriateness of the inputs of the indices
used, the completeness and adequacy of the data and to confirm
whether all aspects of pipeline assets had been considered.
•
I reviewed the approved tariff application from NERSA to
assess the appropriateness of some of the inputs.
R5 676 million and R8 380 million respectively. The assets are
reported under pipeline network assets. The valuation of the
assets in these terminals was performed in accordance with the
DRC method by the independent expert and was subject to
testing in line with other procedures on property, plant and
equipment.
The matter is regarded as key due to the manner in which the
items were capitalised and maintained in the fixed asset register
of the division i.e. the individual assets were consolidated as one
line item in accordance with the categories in which they belong
and not shown as individual assets, resulting in the inability to
perform conventional audit procedures to obtain assurance on the
existence of the assets as well as values in the financial records.
In addition, asset capitalisation schedules were used to support
the amounts in the fixed asset register.
This required significant auditor attention in performing the audit
work including the need for significant involvement of the
technical team in determining a suitable approach to obtain the
required assurance.
the fixed asset register to obtain a further detailed breakdown
of the assets to assist in being able to individually identify the
assets on the ground.
• I conducted a site visit at the TM1 and TM2 terminals together
with the civil engineer to perform the physical verification
exercise and to confirm that the assets which were identified to
be consolidated have been attributed to the correct categories.
• I prepared an observation report highlighting the key individual
observations noted at the TM1 and TM2 sites for management
consideration and response, which formed a key part of us
deriving a conclusion on the TM1 and TM2 assets specifically.
• I assessed management’s response to our observations to
determine whether the response sufficiently addresses the
observations noted and the possible impact on the financial
records.
• I provided conclusions on management responses and indicated
that we would further be requesting a specific management
representation letter on the TM1 and TM2 assets as well as a
representation from the independent external valuers on
specifically the following issues:
1. Significant parts and components have been considered in
the values reflected for the asset categories.
2. The useful lives assessment has included the assessment
that significant components of the assets have the same
useful lives.
I concluded based on the representations received as well as
the responses on the observation report.
89
Annual financial statements
Independent auditor’s report
Report of the auditor-general to Parliament on
for the year ended 31 March 2022
Valuation of decommissioning and environmental liabilities
Transnet’s decommissioning and environmental liabilities, as
• I obtained and documented an understanding of relevant
disclosed in note 25, was valued at R6 095 million as at 31 March
controls in relation to the provision process.
2022 (2021: R5 890 million). The provisions are highly
• I appointed an expert to assist in auditing the integrity of the
judgemental, as they are calculated and recognised as a provision
underlying models, and discussed and challenged key inputs and
using the best estimate of the cost to dismantle and remove the
assumptions with management expert/valuers and management
item and rehabilitate the site and may change from year to year
with reference to independent data.
taking into account the changes in intended use of the asset, new
• I assessed the independent expert’s competence, experience,
techniques and know-how in rehabilitating affected sites,
qualifications and independence.
estimated risks and uncertainties surrounding the obligation and
• I identified the cost assumptions that have the most significant
the time value of money. The assumptions are impacted by future
impact on the provisions and tested the appropriateness of
activities and the legislative environment in which the public
these assumptions. Also used our experts to evaluate the
entity operates.
reasonableness of the discount rate applied to the provisions.
The decommissioning and environmental provisions are also
• I verified the completeness of the data by comparing it with
affected by changes in the estimated date on which the item of
work performed on property plant and equipment testing
property, plant and equipment will be dismantled or its removal
specifically on assets where site restoration would be required
and restoration of the site may take place.
and specific lines where hazardous material is railed.
Management is required to make a number of significant
• I assessed whether decommissioning and environmental
provision movements should be expensed or capitalised by
assumptions and judgements in determining the fair value as
understanding the reason for the change and by comparing the
noted above and therefore I have identified this as a potential
movement with the carrying amount of the related asset.
risk.
• I confirmed that the approach used by management was
There is a high level of estimation and uncertainty regarding the
appropriate to determine the provision in the consolidated and
separate financial statements.
valuation of decommissioning and environmental liabilities; as a
• I assessed whether the disclosures in the financial statements
result I have spent significant audit effort, including the time
are appropriate and in accordance with IAS 37 Provisions,
spent by senior members of the audit team, in auditing the
contingent liabilities and contingent assets.
valuation performed and the reasonableness of conclusions
reached and adjustments passed.
Auditor-general’s responsibilities for the
audit of the consolidated and separate
financial statements
My objectives are to obtain reasonable assurance about whether
the consolidated and separate financial statements as a whole are
free from material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes my opinion. Reasonable
assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with the ISAs will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
consolidated and separate financial statements.
A further description of my responsibilities for the audit of the
consolidated and separate financial statements is included in
the annexure to this auditor’s report.
Report on the audit of the annual
performance report
Introduction and scope
In accordance with the Public Audit Act 25 of 2004 (PAA) and the
general notice issued in terms thereof, I have a responsibility to
report on the usefulness and reliability of the reported performance
information against predetermined objectives for selected objectives
presented in the annual performance report. I performed procedures
to identify material findings but not to gather evidence
I performed procedures to determine whether the reported
performance information was consistent with the approved
performance planning documents. I performed further procedures to
determine whether the indicators and related targets were
measurable and relevant, and assessed the reliability of the
reported performance information to determine whether it was valid,
accurate and complete.
I did not identify any material findings on the usefulness and
reliability of the reported performance information for these key
performance areas:
•
KPA 2 – Reduce the total cost of logistics, effect and
accelerate modal shift in strategic growth segments.
•
KPA 3 – Leverage private sector in the provision of both
infrastructure and operations where required for strategic
growth segments.
Other matters
I draw attention to the matters below.
Achievement of planned targets
Refer to the annual performance report on pages 25 to 27 for
information on the achievement of planned targets for the year.
Adjustment of material misstatements
I identified material misstatements in the annual performance
report submitted for auditing. These material misstatements were
in the reported performance information of KPA 2 – Reduce the
Emphasis of matters
I draw attention to the matters below. My opinion is not modified in
respect of these matters.
Restatement of corresponding figures
As disclosed in note 39 of the annual financial statements, the
corresponding figures for 31 March 2021 were restated as a result
of errors in the financial statements of the Group at, and for the
year ended, 31 March 2022.
Events after the reporting period date
I draw attention to note 41 in the annual financial statements, which
deals with subsequent events and the impact of the adverse weather
and flooding in KwaZulu-Natal Province on Transnet’s operations.
Management have outlined how they plan to deal with the event
in their commentary. Our opinion is not modified in respect of this
matter.
Other matter
I draw attention to the matter below. My opinion is not modified in
respect of this matter.
Exemption of Transnet from disclosing irregular,
fruitless and wasteful expenditure in the annual
financial statements
The annual financial statements of the prior years included details
of irregular, fruitless and wasteful expenditure, as required by
section 55(2)(b)(ii) and (iii) of the PFMA, and treasury regulation
28.2.1. However, commencing with the year under review, the
Minister of Finance per section 92 of the PFMA granted exemption
to Transnet from complying with the aforementioned sections of the
PFMA for a period of three years ending 31 March 2024. The effect
of this exemption is that irregular, fruitless and wasteful expenditure
is no longer included as part of the annual financial statements, and
is now included under the legislative compliance section on pages
120 to 125 of the integrated report of the entity. Accordingly, I do not
express an opinion on this disclosure.
Responsibilities of the accounting authority
for the financial statements
The board of directors, which constitutes the accounting authority, is
responsible for the preparation and fair presentation of the
consolidated and separate financial statements in accordance with
IFRS and the requirements of the PFMA and the Companies Act,
and for such internal control as the accounting authority determines
is necessary to enable the preparation of consolidated and separate
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated and separate financial statements, the
accounting authority is responsible for assessing the Group’s ability
to continue as a going concern, disclosing, as applicable, matters
relating to going concern and using the going concern basis of
accounting unless the appropriate governance structure either
intends to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
to express assurance.
My procedures address the usefulness and reliability of the reported
performance information, which must be based on the public entity’s
approved performance planning documents. I have not evaluated
the completeness and appropriateness of the performance
indicators included in the planning documents.
My procedures do not examine whether the actions taken by the
public entity enabled service delivery. My procedures do not extend
to any disclosures or assertions relating to the extent of
achievements in the current year or planned performance strategies
and information in respect of future periods that may be included as
part of the reported performance information. Accordingly, my
findings do not extend to these matters.
I evaluated the usefulness and reliability of the reported
performance information in accordance with the criteria developed
from the performance management and reporting framework, as
defined in the general notice, for the following selected key
performance areas presented in the public entity’s annual
performance report for the year ended 31 March 2022:
KPA 2 – Reduce the total cost of logistics, effect
and accelerate modal shift in strategic growth
segments
26
KPA 3 – Leverage private sector in the provision
of both infrastructure and operations where
required for strategic growth segments
26
total cost of logistics, effect and accelerate modal shift in strategic
growth segments and KPA 3 – Leverage private sector in the
provision of both infrastructure and operations for strategic growth
segments. As management subsequently corrected the
misstatements, I did not raise any material findings on the
usefulness and reliability of the reported performance information.
Report on the audit of compliance with
legislation
Introduction and scope
In accordance with the PAA and the general notice issued in
terms thereof, I have a responsibility to report material findings on
the group’s compliance with specific matters in key legislation. I
performed procedures to identify findings but not to gather
evidence to express assurance.
The material findings on compliance with specific matters in key
legislation are as follows:
Annual financial statements, performance
reports and integrated report
The annual financial statements submitted for auditing were not
fully prepared in accordance with the prescribed financial reporting
framework, as required by section 55(1)(b) of the PFMA. Material
misstatements of investment property, fair value adjustment, related
party transactions and commitments identified by the auditors in the
submitted financial statements were corrected, resulting in the
financial statements receiving an unqualified audit opinion.
1011
Annual financial statements
Independent auditor’s report
Report of the auditor-general to Parliament on
Transnet SOC Limitedfor the year ended 31 March 2022
Expenditure management
Effective and appropriate steps were not taken to prevent irregular
expenditure amounting to R1,1 billion as disclosed in the legislative
compliance section contained in the integrated report, as required
by section 51(1)(b)(ii) of the PFMA. The value disclosed in the
integrated report may not reflect the full extent of the irregular
expenditure incurred. The majority of the irregular expenditure was
caused by non-compliance with the entity’s procurement processes
and the 2017 Preferential Procurement Regulations (PPR). Irregular
expenditure was identified during the audit process on awards made
during the period 1 April 2021 to 31 March 2022.
Procurement and contract management
I was unable to obtain sufficient appropriate audit evidence that
goods, works and services were procured through a
procurement process which is fair, equitable, transparent and
competitive, as required by section 51(1)(a)(iii) of the PFMA.
Some of the contracts and quotations were awarded to bidders
based on preference points that were not allocated or calculated in
accordance with the requirements of the Preferential Procurement
Policy Framework Act 5 of 2000 (PPPFA) and PPR 2017.
Some of the contracts and quotations were awarded to bidders that
did not score the highest points in the evaluation process, as
required by section 2(1)(f) of PPPFA and regulation 11 of PPR 2017.
Similar non-compliance was also reported in the prior year.
I was unable to obtain sufficient appropriate audit evidence that
contracts and quotations were awarded to bidders based on points
given for criteria that were stipulated in the original invitation for
bidding and quotations, as required by regulation 5(6) and 5(7) of
PPR 2017.
Some of the contracts and quotations were awarded to bidders
based on pre-qualification criteria that were not stipulated or
differed from those stipulated in the original invitation for bidding
and quotations, in contravention of regulation 4(1) and 4(2) of PPR
2017.
I was unable to obtain sufficient appropriate audit evidence that
tender requirements for contracts above R30 million included a
condition for mandatory subcontracting to advance designated
groups, as required by regulation 9(1) of PPR 2017.
I was unable to obtain sufficient appropriate audit evidence that
construction contracts were awarded to contractors that were
registered with the Construction Industry Development Board and
qualified for the contract in accordance with section 18(1) of the
CIDB Act and CIDB Regulations 17 and/or 25(7A).
Some of the bid documentation for procurement of commodities
designated for local content and production, did not stipulate the
minimum threshold for local production and content as required by
regulation 8(2) of the PPR 2017. This non-compliance was also
identified in the procurement processes for the COVID-19 personal
protective equipment.
Some of the commodities designated for local content and
production, were procured from suppliers who did not submit a
declaration on local production and content in accordance with
paragraph 3.4 of National Treasury Instruction Note 4 of 2015/2016.
This non-compliance was identified in the procurement processes
for the COVID-19 personal protective equipment.
Some of the commodities designated for local content and
production, were procured from suppliers who did not meet the
prescribed minimum threshold for local production and content, as
required by regulation 8(5) of the PPR 2017. This non-compliance
was identified in the procurement processes for the COVID-19
personal protective equipment.
Consequence management
I was unable to obtain sufficient appropriate audit evidence that
disciplinary steps were taken against officials who had incurred
irregular, fruitless and wasteful expenditure as required by section
51(1)(e)(iii) of the PFMA. This was due to proper and complete
records that were not maintained as evidence to support the
investigations into irregular expenditure.
Disciplinary steps were not taken against some of the officials who
had incurred or permitted irregular, fruitless and wasteful
expenditure, as required by section 51(1)(e)(iii) of the PFMA.
Disciplinary hearings were not held for confirmed cases of financial
misconduct committed by some of the officials, as required by
treasury regulation 33.1.1.
Other information
The accounting authority is responsible for the other information. The
other information comprises the information included in the
integrated report, which includes the report of the directors, the audit
committee’s report and the company secretary’s certificate, as
required by the Companies Act. The other information does not
include the consolidated and separate financial statements, the
auditor’s report and those selected key performance areas
presented in the annual performance report that have been
specifically reported on in this auditor’s report.
My opinion on the financial statements and findings on the reported
performance information and compliance with legislation do not
cover the other information and I do not express an audit opinion or
any form of assurance conclusion on it.
In connection with my audit, my responsibility is to read the other
information and, in doing so, consider whether the other information
is materially inconsistent with the consolidated and separate
financial statements and the selected key performance areas
presented in the annual performance report, or my knowledge
obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work I have performed, I conclude that there is
a material misstatement in this other information, I am required
to report that fact. I have nothing to report in this regard.
Internal control deficiencies
I considered internal control relevant to my audit of the consolidated
and separate financial statements, reported performance information
and compliance with applicable legislation; however, my objective
was not to express any form of assurance on it. The matters
reported below are limited to the significant internal control
deficiencies that resulted in the findings on the annual performance
report and the findings on compliance with legislation included in this
report.
There was inadequate oversight responsibility regarding financial
reporting, compliance and related internal controls to ensure that
compliance requirements are met in order to prevent irregular,
fruitless, and wasteful expenditure.
Record management systems were not implemented effectively to
ensure that complete, relevant and accurate information is
accessible and available to support reporting.
Effective systems of internal control were not implemented to
ensure accurate financial information at an Operating Division (OD)
level. The preparation of OD financial information in support of the
financial statements preparation process was not adequately
executed to ensure a comprehensive review of year-end
adjustments and reconciliations; resulting in material adjustments
identified and adjusted for through the audit process at an OD level.
The accounting authority and management developed action plans
as part of strengthening accountability and consequence
management. As the implementation of these action plans is still in
progress, we identified instances of non-compliance with applicable
legislation and related internal controls that resulted in the lack of
effective consequence management practices.
There is a concern in relation to the quality of the performance
information as material misstatements were identified during the
audit process. Inconsistencies were identified between the
information in the revised Shareholder’s Compact and the
performance report, which were mainly due to inadequate review of
the performance information.
Good governance of information technology (IT) must be anchored
in and aligned to best practice, such as the King IV report on
Corporate Governance and COBIT (control objectives for
information and related technologies) framework (as adopted by
Transnet), which are critical in the delivery of IT services that are
aligned to strategic initiatives of the organisation. To this effect,
leadership is in the process of finalising the approval of IT
governance related documentation that requires adoption by the
board of directors.
As the majority of financial management controls are automated
and monitoring takes place mostly on reports generated by the IT
systems; good IT controls and skills are fundamental to enable
robust financial and performance reporting, including in-year
monitoring. The design and implementation of formal controls
relating to safeguarding, access, continuity availability and
management of changes to applications systems were not
always adequate or implemented.
Material irregularities
In accordance with the PAA and the material irregularity regulations,
I have a responsibility to report on material irregularities identified
during the audit and on the status of the material irregularities
reported in the previous year’s auditor’s report.
Status of previously reported material
irregularities
Contracts for the lease of heavy duty plant and
equipment awarded to bidder(s) that did not
score the highest points
An award of R831 123 000 was made by the public entity in
December 2019 for the leasing of front-end loaders, front-end
loaders with pusher attachments, articulated dump trucks, tipper
trucks, mobile fuel bowsers and excavators, for a period of five
years; to bidders that did not score the highest points, as required
by section 2(1)(f) of the PPPFA and PPR 11(2). The awarding of
the contract to more than one bidder without setting objective
criteria to justify the awards is likely to result in a material financial
loss as the public entity paid a higher price per item of equipment.
The accounting authority was notified of the material irregularity on
4 August 2021. The following actions have been taken to address
the material irregularity:
•
A forensic investigation into the material irregularity was
completed on 29 March 2022. It concluded that corrective action
be taken against the implicated officials that contravened the
provisions of the PPPFA, but no fraud, theft or breach of fiduciary
duty was identified.
•
The accounting authority plans to commence with disciplinary
steps against the implicated officials. The steps will include the
determination whether the responsible officials are liable by law
for the losses suffered by the entity.
I will follow up on the implementation of the planned actions during
my next audit.
Contract amounts exceed the tendered prices for
the lease of heavy duty plant and equipment
An award of R831 123 000 was made by the public entity in
December 2019 for the leasing of front-end loaders, front-end
loaders with pusher attachments, articulated dump trucks, tipper
trucks, mobile fuel bowsers and excavators, for a period of five
years. The contract amounts awarded to the bidders exceeded the
amounts per the bidding documents submitted and included
escalated prices even though price increase negotiations had not yet
taken place.
Officials in the public entity who are responsible for the effective,
efficient, economical and transparent use of financial and other
resources within their area of responsibility awarded contracts at
amounts in excess of the prices per the bid submission which is in
contravention of section 57(b) of the PFMA. The awarding of
contracts at amounts higher than the bidding price will result in a
material financial loss.
1213
Annual financial statements
Independent auditor’s report
Report of the auditor-general to Parliament on
Transnet SOC Limitedfor the year ended 31 March 2022
Annexure – Auditor-general’s responsibility for the audit
for the year ended 31 March 2022
The accounting authority was notified of the material irregularity on
4 August 2021. The following actions have been taken to address
the material irregularity:
•
A forensic investigation into the material irregularity was
completed on 29 March 2022. It concluded that corrective action
be taken against the implicated officials that contravened the
provisions of the PPPFA, but no fraud, theft or breach of fiduciary
duty was identified.
•
The accounting authority plans to commence with disciplinary
steps against the implicated officials. The steps will include the
determination whether the responsible officials are liable by law
for the losses suffered by the entity.
I will follow up on the implementation of the planned actions during
my next audit.
Other reports
In addition to the investigations relating to material irregularities,
I draw attention to the following engagements conducted by various
parties which had, or could have, an impact on the matters reported
in the public entity’s financial statements, reported performance
information, compliance with applicable legislation and other related
matters. These reports did not form part of my opinion on the
financial statements or my findings on the reported performance
information or compliance with legislation.
Allegations of maladministration regarding supply chain
management and other improper conduct highlighted in the state
capture report have been brought to the attention of those charged
with governance. As at the date of this report, investigations are still
ongoing by various state institutions.
At the request of Transnet, limited assurance engagements were
performed on compliance of the issue of commercial papers issued
between 1 April 2021 and 31 March 2022 under its ZAR80 000 000
000 domestic medium-term note and commercial paper programme
with the provisions of the commercial paper notice (Government
Notice 2172 published in Government Gazette no. 16167 of 14
December 1994) (the notice) issued by the registrar of banks, as
required by paragraph 3(5)(j) of the said notice. Two reports were
issued to Transnet on 31 January 2022 and
11 July 2022 and covered the period 1 April 2021 to 31 March 2022.
At the request of Transnet, an agreed-upon procedures engagement
was performed to assess the allocation of Transnet corporate
overhead costs to the Operating divisions. The report covered the
period 1 April 2021 to 31 March 2022 and was issued to Transnet on
20 July 2022.
At the request of Transnet, a reasonable assurance engagement
was performed on the Transnet National Port Authority (TNPA)
annual financial statements for the financial year ending 31 March
2022. The objective of the engagement was to report whether the
financial statements present fairly, in all material respects, the
financial position of TNPA as at 31 March 2022, and their financial
performance and cash flows for the year then ended in accordance
with IFRS and the requirements of the National Ports Act 12 of 2005.
The report was issued to TNPA on 27 July 2022.
An agreed-upon procedures engagement was performed relating to
an exemption granted by the Minister of Finance to Transnet which
permits the disclosure of irregular, fruitless and wasteful
expenditure in the integrated report. The engagement covered the
period 1 April 2021 to 31 March 2022 and the report was issued to
Transnet on 27 July 2022.
Pretoria
27 July 2022
As part of an audit in accordance with the ISAs, I exercise
professional judgement and maintain professional scepticism
throughout my audit of the consolidated and separate financial
statements and the procedures performed on reported performance
information for selected key performance areas and on the public
entity’s compliance with respect to the selected subject matters.
Financial statements
In addition to my responsibility for the audit of the consolidated and
separate financial statements as described in this auditor’s report, I
also:
•
identify and assess the risks of material misstatement of the
consolidated and separate financial statements, whether due to
fraud or error; design and perform audit procedures responsive to
those risks; and obtain audit evidence that is sufficient and
appropriate to provide a basis for my opinion. The risk of not
detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations or the override
of internal control;
•
obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the public entity’s internal control;
•
evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the board of directors, which constitutes the accounting
authority;
•
conclude on the appropriateness of the accounting authority’s use
of the going concern basis of accounting in the preparation of the
financial statements. I also conclude, based on the audit evidence
obtained, whether a material uncertainty exists relating to events
or conditions that may cast significant doubt on the ability of
Transnet SOC Limited and its subsidiaries to continue as a going
concern. If I conclude that a material uncertainty exists, I am
required to draw attention in my auditor’s report to the related
disclosures in the financial statements about the material
uncertainty or, if such disclosures are inadequate, to modify my
opinion on the financial statements. My conclusions are based on
the information available to me at the date of this auditor’s report.
However, future events or conditions may cause a public entity to
cease operating as a going concern;
•
evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and determine
whether the financial statements represent the underlying
transactions and events in a manner that achieves fair
presentation; and
•
obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. I am responsible for the direction, supervision and
performance of the Group audit. I remain solely responsible for
my audit opinion.
Communication with those charged
with governance
•
I communicate with the accounting authority regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in
internal control that I identify during my audit.
•
I also provide the accounting authority with a statement that I
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on my
independence and, where applicable, actions taken to eliminate
threats or safeguards applied.
•
From the matters communicated to those charged with
governance, I determine those matters that were of most
significance in the audit of the consolidated and separate financial
statements for the current period and are therefore key audit
matters. I describe these matters in this auditor’s report unless
law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, I determine that a matter
should not be communicated in this auditor’s report because the
adverse consequences of doing so would reasonably be
expected to outweigh the public interest of such communication.
1415
Annual financial statements
Audit Committee report
Audit Committee report
Mandate
The Audit Committee presents this report in terms of the
requirements of the PFMA and the related Treasury Regulations,
section 94(7)(f) of the Companies Act and in accordance with the
King IV Report on Corporate Governance for South Africa 2016, for
the financial year ended 31 March 2022.
The role of the committee is defined in the Audit Committee
mandate, which is approved by the Board. It covers, among others,
its statutory duties and assistance to the Board with the oversight of
financial and non-financial reporting and disclosures, safeguard of
assets, the internal control system, fraud and risk management,
internal and external audit functions and combined assurance as
well as information technology governance.
Execution of statutory duties
In the conduct of its duties the committee has, inter alia, reviewed
the following areas:
Oversight of financial and non-financial
reporting and disclosure
Considered the annual financial statements for fair presentation
with the relevant requirements of the PFMA, Companies Act and
IFRS for relevance, adequacy, reliability and accuracy of financial
and non-financial information provided by management and risks
that may impact the integrity of the report. The committee also
focused on disclosure of sustainability information in the report to
ensure that it is reliable and does not conflict with the financial
information.
Shareholder’s Compact and
financial performance
Transnet performance for the 2021/22 financial year (FY) improved
from the prior FY performance but was met with internal and
external challenges (including availability of locomotive issues,
rising security incidents, the unrest in July and an IT security
breach) as it began paving the way towards pre-pandemic recovery.
The committee reviewed the performance information presented.
Transnet reported a profit of R5,0 billion for the financial year. In this
regard the reader is referred to the report of the Group Chief
Financial Officer in the integrated report, where detailed disclosure
of the financial performance is provided including the significant
investment property fair value gains recognised in the financial year.
Overall performance against the Shareholder’s Compact, requires
significant improvement, considering the impact of additional waves
of the COVID-19 virus and operational challenges experienced
during the reporting period. Accordingly, management’s efforts to
implement strategic objectives and improve operational efficiencies
and thus reduce the cost of doing business was significantly
hampered.
Management will continue to prioritise the engagement of
stakeholders, ensuring transparency with regards to operational and
financial performance and keeping them informed of progress with
regards to the turnaround strategy of Transnet.
for the year ended 31 March 2022
Irregular expenditure
In the past four financial years, Transnet has received a qualified
audit opinion as a result of misstatements identified in the irregular
expenditure disclosed in the Annual Financial Statements (AFS).
The consequences of the qualifications have been severe for
Transnet. Against this background, Transnet requested a departure
from the National Treasury from disclosing in the AFS amounts as
required by certain provisions of the PFMA and related instruction
notes. These included irregular and fruitless and wasteful
expenditure (IFWE) and non-condoned historical irregular
expenditure as required by the Irregular Expenditure Framework.
Transnet received an exemption from disclosing the particulars
required by section 55(2)(b)(i) (ii) and (iii) of the PFMA in the AFS for
a period of three years, starting from 2021/22 to 2023/24 financial
years. The extent of the exemption has been limited to the
disclosure of the confirmed and under assessment IFWE in the
integrated report of the current and one comparative years.
The exemption was granted to allow Transnet to develop
and implement internal control measures to ensure accurate
and complete reporting of IFWE.
The enhancement of the PFMA remediation plan remains a key
priority for the Company. The lessons learned and challenges
have been clearly defined and place the organisation in a much
better position to speedily implement initiatives that drive PFMA
compliance across the organisation.
Management and the Board wish to emphasise that the audit
exposed many shortcomings in supply chain management (SCM)
and procurement in general. An enhanced effort is required to
improve this aspect of the business in the 2022/23 FY.
Material irregularity
In the 2021/22 FY no material irregularities (MI) were confirmed.
The MI reported in the 2020/21 FY, relating to procurement
irregularities identified in Transnet Port Terminals was subjected to a
forensic investigation. This was required in order to confirm actual
value of financial loss as well as any remedial actions to be taken
against any employees that were involved in causing the
irregularities and related financial loss. A forensic investigation was
conducted by an independent firm and was concluded in February
2022. External audit assessed the outcome and have not yet
concluded as the consequence management process is still in
progress and will therefore be re-assessed by external audit in the
next financial cycle.
State capture and investigations
Transnet continued to co-operate with the Commission and other
state agencies carrying out various investigations. The legal
processes are underway dealing with these matters. Transnet has
also put measures in place to ensure that consequence
management and remediation actions are continuously being
undertaken, this includes matters handed over to the Special
Investigative Unit (SIU) for further investigations. Courts have also
been approached to have certain contracts linked to fraudulent
activities set aside.
Updates on the consequence management taken by Transnet are
included in reports sent to the National Treasury and the
Department of Public Enterprise.
Internal audit
The committee considered the internal audit charter, annual audit
plan, alignment of the audit plan with Company risks, the
independence and the effectiveness of the function, internal audit
reports, management action plans and the co-ordination with
external auditors.
The committee further reviewed and assessed the maturity and
impact of combined assurance processes within the organisation.
Transnet internal audit is now the custodian of this initiative and to
this end, the combined assurance policy and plan has been
approved by the committee. Good progress has been made with
operating division assurance forums as well as priority focus area
assurance forums holding their inaugural sessions toward the latter
part of the financial year. Combined assurance induction training an
orientation of newly appointed management has commenced and
remains ongoing.
Following the passing of Mr Kgomo, Ms XN Ntshingila assumed the
role of acting chief audit executive. Transnet secured the
appointment of a permanent chief audit executive Ms S Khan who
began her tenure in March 2022. During the year, Transnet internal
audit began implementation of the new internal audit operating
model, focusing on proactive, transversal and continuous assurance
whilst improving the capability and capacity of the entire function.
The aim of the hybrid model is to have the majority of the functions
housed within Transnet, with the governance and reporting division
leading the transition to the new model by end of the next financial
year.
The committee remains of the view that a well performing internal
audit function will contribute to strong governance, general control
and risk management in the organisation. The committee remains
concerned that the situation at present does not reflect the progress
that was expected in the current financial year. Under the leadership
of Ms S Khan, efforts to improve will have to be intensified, along
with an alignment with external audit to ensure reliance can be
placed on internal audit work by external audit.
External audit
The committee considered the appointment of the external auditors
in terms of the Companies Act and other applicable requirements,
external audit plan, the audit budget, the audit fee and terms of
engagement of the external auditors.
The committee reviewed the independence and objectivity of the
external auditors, and the accounting, sustainability and auditing
concerns identified by the external auditors.
Internal control, risk management and
compliance, with legal and regulatory
provisions
The committee considered the effectiveness of the internal control
systems and governance processes, reviewed legal matters that
could have a material impact on the Company, the risks and
mitigation plans, and the effectiveness of the entity’s compliance
with legal and regulatory requirements.
Internal control assessment
The overall control environment for Transnet is assessed as
needs improvement to support and enable the achievement of
strategic business and operational objectives, including complete
and accurate reporting to internal and external stakeholders and
compliance to applicable laws and regulations.
Previous years’ irregularities, restructuring, new operating models
and strategies as well as changes emanating from the COVID-19
related national lockdown eroded not just the financial performance
of the Transnet Group, but brought to the fore significant challenges
in the control environment which confirmed the unsatisfactory
assessment of the control environment for the prior year.
Despite the introduction of several management initiatives including
stabilising leadership; re-prioritizing corporate governance as a
business imperative and strengthening of the various lines of
defense, the control environment effectiveness has not substantially
improved as these fixes are not quick and will require a protracted
timeframe for embedding, measuring, monitoring and improving.
The 2021/22 financial year proved to be a challenging year for
Transnet with significant operational impediments such as:
•
Availability of locomotives;
•
Security of assets from theft and vandalism;
•
Cyber attack;
•
July unrest that impacted operations;
•
Weather conditions;
•
Fire incidents; and
•
Voluntary severance packages (VSPs).
The effectiveness of a system of internal controls is directly impacted
by people and technology, both of which were severely constrained
in the current financial year, due to the cyber-attack and VSPs.
These have in part contributed to the lack of desired improvement in
the control environment.
We have found that this overall condition has not improved since the
prior year and operations is the significant area where enhancement
is required.
Management has demonstrated continued commitment to this end,
as remediation of weaknesses is ongoing, albeit not at the rate
needed to reduce continued and protracted risk exposures to
business. This is evidenced by the number and aging of overdue
open audit findings and those linked to long-term solutions. As such
the control environment remains vulnerable until such remedial
actions and enhancements are implemented.
Information technology (IT) general controls
The committee monitors the effectiveness of the IT control
environment and mitigating controls implemented. The committee
noted the impact of the cyber attack and the improvements required
to the overall business continuity and disaster recovery processes as
well as the dependence on third-party outsourcing partners.
1617
Annual financial statements
Audit Committee report
Audit Committee report
Management has reviewed these outsourcing models, and related
over-reliance in this regard, along with the management of IT and
business continuity, and has begun implementing the automation
and elimination of the extensive manual activities in the finance and
operational environments to facilitate the change required to
improve these related processes.
Going-concern assumption
The committee concurs with the view expressed by management
and evaluated by external audit that the adoption of the going
concern assumption in the preparation of the annual financial
statements is appropriate.
In performing their going-concern assessment, members of the
committee considered the robustness of budgets and the 2021/22
business results, cash flow projections, progress made on cash-
preservation initiatives to mitigate against the impact of revenue
for the year ended 31 March 2022
shortfalls as well as the flexibility of the capital investment plan and
the well-defined funding plan.
Appointment of debt officer
Ms Nonkululeko Dlamini (Chief Financial Officer) was appointed
as debt officer during the prior financial year. The board of
directors have considered and satisfied themselves on the
competence, qualification and experience of the debt officer.
Audit Committee meetings
The Audit Committee comprises of independent non-executive
directors who are duly elected by the Shareholder Representative at
the annual general meeting in line with legislative requirements.
A total of seven meetings were held during the year under review
and all quorum requirements were met. The meetings and
attendance records of the committee are reflected in the table that
follows.
Recommendation of the annual
financial statements and the
integrated report
The committee has evaluated the annual financial statements of
Transnet and the integrated report for the year ended 31 March
2022 and, based on the information provided to it, considers that
they comply, in all material respects, with the requirements of the
Companies Act, the PFMA and IFRS.
Conclusion
The committee is encouraged by the unqualified audit opinion,
although there are areas that require further attention to deliver an
absolute positive report given the improvements required in the
overall control environment and the continued focus required in the
compliance space linked to IFWE. The committee does have
continued confidence in the executive committee and remains
Composition and meeting attendance
Schedule of attendance at meetings from 1 April 2021 to 31 March 2022
Mr LL Von Zeuner
(Chairperson)
✓
✓
✓
✓
✓
✓
✓
Ms ME Letlape
✓
✓
✓
✓
✓
A
A
Mr AP Ramabulana
✓
✓
✓
✓
✓
✓
✓
Ms G Ramphaka
✓
✓
✓
✓
✓
A
✓
SP Special meeting.
✓
Present.
A Apology.
committed that the remaining challenges will be addressed
accordingly with the continued implementation of the Group’s
growth and renewal strategy.
We would also like to thank the AGSA for its support during the
audit with improvements in their processes having been noted and
appreciated and have contributed to the improvements in the
reporting timelines that have been realised.
LL Von Zeuner
Chairperson of the Transnet Audit Committee
25 July 2022
The Group Chief Executive, the Chief Financial Officer, the Chief
Audit Executive and other key executive management are required to
attend all meetings of the Audit Committee. In addition,
representatives from the office of the AGSA have a standing
invitation to attend all committee meetings. The auditors, both
internal and external and management are also afforded individual
closed sessions with the Audit Committee.
Key focus areas of the meetings
The quarterly meetings held during the reporting period entailed the
following key discussions:
•
Liquidity and funding challenges and the approach to address
the associated risks (including that related to the company’s loan
covenants);
•
Debt maturity and adherence to the foreign borrowing limit;
•
Gearing level and structure of the statement of financial position;
•
Performance of Operating divisions and the impact on free cash
flows;
•
The integrated assurance plan and internal audit findings (control
environment needs improvement) remain sources of concern;
•
IFWE, and the implementation of the related remedial plan and
consequence management application throughout the Group;
•
Tax and IT activities; and
•
Combined assurance implementation.
Main objectives of the committee for
2022/23
•
Monitoring of financial and operational risks, including the impact
of the floods in KZN;
•
Revenue generation and focus on cost-savings;
•
Funding approach and planning for upcoming debt redemption,
including overseeing drawdowns from the GMTN programme;
•
Improved liquidity and over time lower gearing levels remain
a priority;
•
Impact of VSP process and solution to resolve any potential gaps;
•
Improvement of the internal control environment;
•
Oversee along with other board committees the turnaround of
SCM/procurement;
•
Continuous improvement on regulatory compliance;
•
Financial sustainability and delivering on environmental, social and
governance (ESG) objectives;
•
Implement appropriate measures to support a successful private
sector participation (PSP) programme and other liquidity
enhancing initiatives; and
•
Remediating audit findings.
Johannesburg
1819
Annual financial statements
Report of the directors
Report of the directors
Introduction
The directors submit their report, together with the Company
and Group annual financial statements, for the year ended 31
March 2022.
Nature of business
Transnet is a public company, wholly owned by the Government
of South Africa, and is the custodian of the country’s rail, ports
and pipelines. Transnet is responsible for enabling the
competitiveness, growth and development of the South African
economy by delivering reliable freight transport and handling
services that satisfy customer demand.
As the custodian of ports, rail and pipelines, Transnet has a
responsibility to ensure the optimal development of the national
freight system. Furthermore, as a responsible corporate citizen
and key implementing agent of the developmental state, Transnet
conducts its activities in order to optimise developmental
outcomes, such as job creation, skills development, economic
transformation, regional integration and industrial capability
building.
Board of directors
The composition of the Board of Directors at 31 March 2022,
summary curricula vitae of the directors, key activities and
decisions of the Board and its committees and performance
evaluations are set out in the ‘abridged governance’ section of the
integrated report. A separate, unabridged version of the
governance report is also available online.
The remuneration and fees paid to directors are set out in note 38
of the annual financial statements.
Performance for the reporting period
Transnet performance for the 2021/22 financial year (FY)
improved from the prior financial year performance but was met
with internal and external challenges as it began paving the way
towards pre-pandemic recovery.
In the 2022 calendar year, South Africa’s real gross domestic
product (GDP) grew by 4,9% following a substantial decline of
6,4% in 2021. The higher economic activity was attributable to
strong commodity prices and the moderate reopening of the local
economy after strict COVID-19 restriction. Despite the anticipated
and slight economic improvement experienced in the 2021FY;
rand depreciation, rising unemployment rate as well as the
country’s ongoing energy crisis continue to pose a significant
threat to the South African economic growth.
Rising security incidents mainly cable theft and vandalism of rail
and pipeline infrastructure, and an IT security breach and related
challenges also impacted port and rail operations.
Transnet’s approach for the 2021/22FY proved resilient as it
recorded higher volume performance in the first two quarters of
the financial year compared to the prior reporting period. This
achievement translated to volume growth in the port and pipeline
operations, with port containers handled of 4 131 ‘000 TEUs
for the year ended 31 March 2022
(2021: 3 916 ‘000 TEUs) a 5,5% increase and pipeline volumes of
15 350 million litres (2021: 13 067 million litres) an increase of
17,5%. Rail volumes did however decline due to the
operational challenges experienced, relating to locomotive
availability, security incidents and bad weather conditions.
Detailed commentary on the performance for the year is contained
in the integrated report on pages 104 to 109.
Accounting policies
The accounting policies applied in the preparation of the annual
financial statements for the year ended 31 March 2022 are in
accordance with IFRS and are consistent with those applied in
the prior year.
Judgements made by management in the application of IFRS
that have a significant impact on the annual financial statements
are disclosed in the accompanying notes to the annual financial
statements.
Share capital
There has been no change in the authorised or issued share
capital of the Company during the year. The issued share capital
of the Company is 12 660 986 310 ordinary shares of R1 each.
Further details pertaining to the Company’s share capital are
contained in note 21 of the annual financial statements.
Dividend
Distributions to the Shareholder are governed by paragraph 28 of
the Company’s Memorandum of Incorporation in line with the
requirements of section 46 of the Companies Act, and are made in
accordance with the Company’s approved dividend policy.
In determining the declaration of dividend, the Transnet Board of
Directors must consider the environment in which the business
operates over the current, short and medium term, taking into
account the following:
•
Shareholder expectations
•
Future funding requirement and reinvestment opportunity
•
Solvency and liquidity
•
Going concern assessment
•
Changes in government and regulatory policies
•
Company’s cash generation ability
•
Economic environment
Further, dividend payment is informed by the availability of excess
cash from operating activities after allowing for:
•
Debt servicing (interest and principal)
•
Funding a sustaining capital investment
•
Financial flexibility
The Board of Directors have decided not to declare a dividend for
the financial year ended 31 March 2022. The Company assessed
the following factors in arriving at this decision:
•
Based on the 2023 Corporate Plan, Transnet will have no
excess cash in the 2022/23 financial year;
•
The Company has a significant sustaining capital investment
backlog and operational requirements given its strategy;
•
The significant debt repayment profile in the short term;
•
The funding of strategic priorities in the corporate plan,
including but not limited to, enterprise development and social
investments; and
•
Transnet’s current sub-investment grade credit rating that may
increase the cost of borrowing.
The declaration of a dividend is reviewed annually and is subject
to the approval of the Shareholder Representative at the annual
general meeting.
Divisions, subsidiaries and
associate companies
A detailed list of subsidiaries and equity-accounted investees is
contained in note 37 of the annual financial statements.
Revaluation of property, plant and
equipment
The Group performs revaluations of its rail infrastructure, port
infrastructure and pipeline networks in accordance with its
accounting policy, which requires an independent valuation every
three years, as well as index or discounted cash flow valuations
in the intervening years where appropriate.
At 31 March 2022, the rail infrastructure assets were revalued
based on the depreciated optimised replacement cost and
discounted cash flow methods. An external valuation of the
pipeline network was performed by an independent firm of
professional valuers on the basis of the depreciated replacement
cost methodology. Port infrastructure was revalued based on the
discounted cash flow method, while port operating assets were
revalued based on an index valuation.
Rail infrastructure
The carrying value of rail infrastructure was revalued by
R6,6 billion (2021: R1,3 billion devaluation) in line with the revenue
projections in the 2023 corporate plan.
Port facilities
The carrying value of port infrastructure was revalued by
R3,9 billion (2021: R10,5 billion revaluation) in line with
revenue projections and port operating assets were revalued
by R169,3 million (2021: R59,4 million devaluation).
Pipeline networks
The carrying value of pipeline networks was revalued
by R905 million (2021: R257 million devaluation).
Fair valuation of investment property
The Group determines the fair value of its investment property on
an annual basis in accordance with IAS 40 Investment Property.
The valuation of the Group’s investment properties at 31 March
2022 was performed by qualified external property valuers and
was arrived at by capitalising normalised net operating income at
market-derived capitalisation rates which are adjusted where
appropriate, to reflect the risk profile of each individual property.
The valuation resulted in a fair value increase in investment
property of R9,8 billion (2021: R770 million decrease) due mainly
to the improvement in the property market since the effects of the
COVID-19 pandemic on the economy in the prior year.
Capital expenditure and commitments
The Company continued to execute its infrastructure investment
programme, spending R13,2 billion for the year (2021:
R15,9 billion). The decrease is mainly due to the
financial constraints, following the impact of COVID-19
lockdown restrictions and capital optimisation.
The capital investment for the year comprised R1,9 billion
(2021: R2,2 billion) invested in the expansion of infrastructure and
equipment and R11,3 billion (2021: R13,7 billion) invested to
maintain capacity in the rail, pipelines and ports divisions.
Further details regarding capital commitments are contained in
note 30.1 of the annual financial statements.
Prior year restatements
The prior year financial statements have been restated mainly as a
result of management’s assessment of CWIP balances and the
fair value of investment property. These errors were accounted for
as prior year adjustments to the annual financial statements in
accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors.
For further detail in this regard, please refer to note 39 of the
annual financial statements.
Passenger Rail Agency of South
Africa (Prasa)
Prasa owed Transnet R1,8 billion at 31 March 2022 (2021:
R2,3 billion), of which R315 million (2021: R396 million) related
to services provided during the year.
The Group recognised R505 million of revenue billed to Prasa in
accordance with IFRS 15, including R249 million which had not
been recognised in prior periods, as the collectability requirement
for these invoices was met following a set-off agreement
between Transnet and Prasa, which allowed Freight Rail to set-
off an amount of R597 million against invoices owed to Prasa.
Going concern
In adopting the going concern assumption, the Board reviewed the
Group’s performance for the year and considered the robustness of
budgets and business results, cash flow projections for the
15 months ending 30 June 2023, cost-saving opportunities, the
cost of capital projects and related optimisation opportunities and
the funding plan.
2021
Annual financial statements
Report of the directors
Report of the directors
Funding
As at 31 March 2022, the Company’s total borrowings amounted
to R128,8 billion (2021: R129,1 billion).
In the period under review, the Group raised funding of
R13,1 billion (2021: R12,3 billion) through the issuance of bonds
and commercial paper (under the Domestic Medium-Term Note
(DMTN) programme) and the execution of bilateral loans without
the provision of government guarantees.
for the year ended 31 March 2022
The decision to limit future capital expenditure to 80% of cash
generated from operations, together with the expected cost
compression through improved procurement processes, will ensure
a reduction in forward-looking debt levels.
Credit ratings
Transnet has two officially recognised rating agencies: S&P
Global Ratings (S&P) and Moody’s Investors Service (Moody’s).
Transnet’s credit rating at the date of issuing this report is
depicted in the table below.
The exemption was granted to allow Transnet to develop
and implement internal control measures to ensure accurate
and complete reporting of IFWE.
Transnet has put measures in place to ensure that consequence
management and remediation actions are continuously being
undertaken, this includes matters handed over to the Special
Investigative Unit (SIU) for further investigations. Courts have also
been approached to have certain contracts linked to fraudulent
activities set aside.
With approximately 22,7% of Transnet’s revenue and 47,9% of
EBITDA impacted by economic regulation, it is critical that
relationships with regulators are managed proactively and
strategically as their decisions could have a significant impact
on operating results, capital investment decisions and investor
confidence.
Pipelines
On 30 September 2021, TPL submitted its 2022/23 financial year
(FY) tariff application to NERSA in terms of the methodology.
Corporate Family Rating/Foreign currency rating
Ba3/Ratings under review
BB-/Negative outlook
Corporate Family Rating/Local currency rating
Ba3/Ratings under review
BB-/Negative outlook
National scale rating (NSR) – long/short term
A2.za/P-1.za/Ratings under review
zaAA/zaA-1+
BCA/SACP
B2/Ratings under review
bb-/Negative outlook
Updates on the consequence management taken by Transnet
will be included in reports sent to the National Treasury and the
Department of Public Enterprises.
The enhancement of the PFMA remediation plan remains a key
priority for the Company. The lessons learned and challenges
have been clearly defined and place the organisation in a much
better position to speedily implement initiatives that drive PFMA
On 24 February 2022 the Energy Regulator set the petroleum
pipelines system tariffs that will allow Transnet to realise a 9,10%
increase in allowable revenue compared to the 2021/22 FY tariff
period. This translates to an 8,02% tariff increase for the Durban to
Alrode route, which will result in an increase of approximately
R4,18 cents c/l in the fuel price in the 2022/23 FY (from 52,20 c/l
to 56,39 c/l).
Further details are provided in note 36 of the annual
financial statements.
Post-retirement benefit obligations
Benefit funds
The Group provides various post-retirement benefits to its active
and retired employees, including post-retirement medical pension.
The two defined benefit funds, namely the Transnet sub-fund of
the Transport Pension Fund (TTPF) and the Transnet Second
Defined Benefit Fund (TSDBF) are fully funded with actuarial
surpluses of R1 381 million (2021: R1 186 million) and
R4 013 million (2021: R3 375 million) respectively. Transnet has
not recognised any portion of the surplus on these funds, as the
fund rules presently do not allow for the distribution of a surplus.
The post-retirement medical benefit obligation is approximately
R368 million (2021: R456 million).
SATS pensioners’ post-retirement medical
benefit obligations
Transnet is committed to identifying a sustainable long-term
solution for the provision of medical scheme benefits to SATS
pensioners and their dependants.
Events subsequent to the reporting
period date
Impact of adverse weather and flooding in
KwaZulu Natal Province on Transnet’s
operations
In the month of April 2022, most parts of KwaZulu-Natal
experienced extreme storms and heavy rainfall which led to
widespread disruptions and regrettably a loss of lives. Transnet
was not spared and the immediate focus was to ensure the safety
of people, and the reinstatement of operations. Notable damage to
assets occurred at Transnet Freight Rail (TFR), Transnet
Engineering (TE), Transnet National Ports Authority (TNPA) and
Transnet Property (TP).
The estimated financial impact is under assessment and will be
accounted for in the 2023 reporting period. Further details will be
provided once the financial impact of the adverse weather and
flooding in KwaZulu-Natal province has been finalised or
determined with a greater degree of certainty.
Compliance and legislation
To the best knowledge and belief of the directors, the Company
has, during the year, complied, in all material respects, with all
legislation and regulations applicable to it, except as disclosed in
the annual financial statements.
The Company has a dedicated Compliance function to assist
directors with the management of compliance obligations.
Compliance utilises a risk-based methodology and approach to
ensure that Transnet’s high risks are treated and/or eliminated.
PFMA compliance
The Public Finance Management Act (PFMA) imposes certain
obligations on the Company relating to the prevention,
identification and reporting of fruitless and wasteful expenditure;
irregular expenditure; expenditure that does not comply with
operational policies; losses through criminal conduct; and the
collection of all revenue.
In the past four financial years, Transnet has received a qualified
audit opinion as a result of misstatements identified in the irregular
expenditure disclosed in the annual financial statements (AFS).
The consequences of the qualifications have been severe for
Transnet. Against this background, Transnet requested a departure
from the National Treasury from disclosing in the AFS amounts as
required by certain provisions of the PFMA and related instruction
notes. These included irregular and fruitless and wasteful
expenditure (IFWE) and non-condoned historical irregular
expenditure as required by the Irregular Expenditure Framework.
Transnet received an exemption from disclosing the particulars
required by section 55(2)(b)(i) (ii) and (iii) of the PFMA in the AFS
for a period of three years, starting from 2021/22 to 2023/24
financial years. The extent of the exemption has resulted in the
disclosure of the confirmed and under assessment IFWE in the
integrated report of the current and one comparative year.
compliance across the organisation.
In an effort to automate its procurement practices and in line with
Transnet’s digitalisation strategy, a new electronic tender
submission system was launched in October 2021. The system
aims to ensure that Transnet tenders are submitted via a secure
e-Tender submission portal replacing manual publications.
Material irregularity
In the 2021/22 FY no material irregularities (MI) were confirmed.
The MI reported in the 2020/21 FY, relating to procurement
irregularities identified in Transnet Port Terminals was subjected to
a forensic investigation. This was required in order to confirm
actual value of financial loss as well as any remedial actions to be
taken against any employees that were involved in causing the
irregularities and related financial loss. A forensic investigation was
conducted by an independent firm and was concluded in February
2022. External audit assessed the outcome and have not yet
concluded as the consequence management process is still in
progress and will therefore be re-assessed by external audit in the
next financial cycle.
Economic regulation and
regulatory reform
The tariffs of two operating divisions, namely Transnet Pipelines
(TPL) and Transnet National Ports Authority are regulated by the
National Energy Regulator of South Africa (Nersa) and the Ports
Regulator of South Africa (Ports Regulator) respectively. The
railway safety permit fees are determined by the Department of
Transport and are payable to the Railway Safety Regulator (RSR).
The Company operates within a policy context determined by
the Department of Public Enterprises (DPE) and the
Department of Transport (DoT) respectively.
Any capital expenditure incurred by TPL in furthering its business
is allowable by NERSA provided that it can be proved to be
prudently incurred. A prudency exercise has been completed by
NERSA on the construction costs of the new multi-product
pipeline (NMPP). This exercise resulted in NERSA declaring an
additional R1,1 billion imprudent to the Transnet R3,17 billion
imprudent amount that is included in the Regulated Asset Base
(RAB). This has been factored into the 2022/23 petroleum
pipelines tariff decision by NERSA.
National Ports Authority
On 16 August 2021, TNPA submitted its tariff application as
prescribed by the tariff methodology. On 15 December 2021, the
Ports Regulator approved TNPA’s tariff increase of 4,8%, due to
the consistent application of the tariff methodology.
Corporatisation and Incorporation of Transnet
National Ports Authority
The creation of TNPA, as a subsidiary of Transnet SOC LTD is
ongoing. Once the relevant provisions of the NPA Act are
amended, as recommended, the incorporation of the TNPA SOC
LTD will be in accordance with the company’s Memorandum of
Incorporation (MOI) and will establish a State-Owned Company as
defined in the Companies Act, No 71 of 2008, incorporated in
accordance with and/or governed by the NPA; the PFMA and other
applicable legislation.
Freight Rail
On 30 October 2020, Transnet presented its views on the
Economic Regulation of Transport (ERT Bill) to the Parliament
Portfolio Committee on Transport. The Company requested
harmonised Economic Regulation Methodologies for an integrated
network of Rail, Ports and Pipelines to be established in the ERT
Bill to enable full economic cost recovery across the network.
2223
Annual financial statements
Report of the directors
Report of the directors
Application for Transnet Single Entity Safety
Permit for period 2022 to 2024
Transnet has submitted its application for the renewal of its three-
yearly Railway Safety Permit, which was due to the Railway Safety
Regulator (RSR) on 31 May 2022. The requirement is that such
application must be submitted to the RSR 90 days before the
expiry of the existing permit. Transnet’s current permit expires on
31 August 2022 and includes the 2021/22 financial year-end
performance results.
Railway Safety Permit Fees 2022 financial year
determination
In terms of the notice, the Minister of Transport made a final
determination of R114,6 million payable by Transnet on the permit
fees for the 2022/23FY. The determination represents a zero
percent increase from the fee charged for the 2021/22FY. It is
envisaged that this will be the last determination based on the
current approach followed by the DoT, as the RSR will be finalising
its proposal on the revision of the methodology. It is expected that
the RSR will submit its revised methodology to the DOT in the
fourth quarter of the year for approval and that the new
methodology will be applicable as from the 2023/24FY.
Judicial proceedings
The annual financial statements include a best estimate of
expected settlement costs for judicial proceedings involving
Transnet, as either defendant or plaintiff, where the outcome can
be assessed with reasonable certainty. These estimates take into
account the legal opinions obtained for the Group. Contingent
liabilities of the Group are disclosed in note 31 of the annual
financial statements.
for the year ended 31 March 2022
pursued against Transnet in respect of an anonymous
complaint under Case Number: 2020Oct0035.
Whilst engagements are underway between Transnet and the
Commission with a view to resolve all matters under investigation,
it is important to note that the investigations against TFR, TPT and
TNPA have been ongoing for more than six (6) years and to date
there has been no referral of any of these matters by the
Commission to the Competition Tribunal. With respect to TPT and
TNPA, it has been two years since the Commission communicated
its preliminary findings against both parties, and its readiness to
refer the matters to the Competition Tribunal for adjudication.
Transnet introduced competition law compliance training for customer
facing functionaries and is collaborating with the Competition
Commission regarding the refinement of its curriculum.
Investigation by the Zondo Judicial
Commission of Inquiry
The Judicial Commission of Inquiry into State Capture, (the
Commission) released its report on Transnet on 1 February 2022. The
recommendations directed at Transnet are being acted upon. The
majority of the recommendations were directed to law enforcement
agencies and Transnet is co-operating to the extent required with
these agencies. The findings in respect of various contracts are,
where possible, being pursued through civil recovery litigation with the
Special Investigating Unit (the SIU).
All the individuals cited in the Commission’s report for further
criminal investigation are no longer employed by Transnet
having resigned from Transnet or have been dismissed.
Special tribunal outcome
Transnet successfully petitioned for leave to appeal against the
judgment by the South Gauteng High Court to the Constitutional
Court. The appeal was heard on 16 November 2021 and judgment
was reserved. On 22 June 2022, the Constitutional Court ruled that
Transnet has (as from 13 September 2020) validly terminated the
pipeline agreement with Total and Sasol which regulated the
conveyance of crude oil from Durban to the Natref inland refinery at
Sasolburg. There has been no determination of the merits of the
claimed amount and that the proceedings thus far have centred
primarily on the termination of the variation agreement. The matter
will revert to the High Court for determination of the remaining
separated issues.
Parallel to the litigation above, Transnet also lodged a complaint
with regard to the ‘neutrality agreement’, in that it was not aligned
to the Petroleum Pipelines Act. Transnet has had various
engagements with Nersa regarding the complaint and Nersa is still
considering same for purposes of adjudication.
Shareholder’s Compact –
performance criteria
The 2021/22FY revised Shareholder’s Compact was approved by
the Board of Directors on 25 October 2021 and by the Minister of
the Department of Public Enterprises on 17 January 2022.
The Shareholder’s Compact KPIs that the Board and the
Shareholder Representative agree on is the performance-
monitoring framework for the Company. The 2021/22 financial year
performance against the Shareholder’s Compact targets are
outlined in the tables that follow. The performance information
contained therein has been subjected to independent audit review,
and the auditors have reported their findings in the independent
auditor’s report.
Transnet Shareholder’s Compact performance for the 2021/22FY
is a reflection of the dynamic internal and external environments
which Transnet operates in. The performance of the Shareholder’s
Compact was adversely affected by the compounded impact of
unexpected challenges experienced in the beginning of quarter 2
as Transnet began paving the way towards pre-pandemic
recovery. These challenges include amongst others; increase in
security related incidents mainly cable theft and vandalism of rail
and pipeline infrastructure, IT security challenges and KZN unrest
which largely impacted port and rail operations.
As a result, only 17 of the 44 Shareholder Compact measures
achieved their target for the financial year resulting in 39%
achievement. This represents an increase from the 12% overall
achievement registered in the 2020/21FY, but significantly lower
than the 80% threshold required by the DPE. Despite these
challenges, the following measures registered positive volume
performance for the financial year; rail containers (Natcor and
Capecor), port containers, port automotive and pipeline volumes.
As a first in an endeavour to improve performance through private
sector participation, the Transnet Board of Directors approved the
private sector participation framework for implementation in the
2022/23 financial year.
To address the consistent operational challenges in the Group
environment, the focus of the 2022/23FY Shareholder’s Compact
for Transnet will seek to address the immediate challenges by
identifying and compacting on KPIs that will enable management
to focus on addressing the operational and financial challenges of
the organisation.
1 064 review application
On 9 March 2021, Transnet and the SIU jointly launched a
substantive application in the High Court to review and set aside
the locomotive supply agreements concluded with four original
equipment manufacturers (OEMs): China South Rail, China North
Rail, Bombardier Transport and General Electric. The relief sought
against each OEM is specific but includes the set aside of the
contracts, for the court to award a just and equitable remedy, which
will include Transnet retaining those locomotives in its possession
and receiving compensation for overpayments.
All of the OEMs have served notice of intention to defend
the application. Transnet and the SIU are proceeding with
the application.
Once the court processes conclude, Transnet will consider the
impact of the outcomes on the fair representation of property, plant
and equipment.
Investigation by the Competition
Commission
On or around 7 July 2016, the Commissioner initiated two formal
complaints against Transnet and its three Operating Divisions, i.e.
Transnet Freight Rail, Transnet Port Terminals and Transnet
National Ports Authority. In November 2021 the Competition
Commission informed Transnet of an additional investigation that
is being
Transnet is working closely with the SIU in recovering losses
suffered as a result of wrongdoing. Following a report from the SIU
about the conduct of a previous Group Executive, Transnet
dismissed the Group Executive and successfully litigated with the
SIU in the SIU Special Tribunal obtaining a judgment on 31 August
2021 in terms of which the previous executive was ordered to pay
back to Transnet R26,4 million for disgorgement of secret profits he
earned while employed by Transnet.
Transnet and the SIU also launched proceedings in the SIU Special
Tribunal for the seizure and forfeiture of funds held by CRRC E-
Locomotive Supply (previously known as China South Rail, one of the
OEMs contracted to deliver locomotives in terms of the 1 064
locomotive supply agreements. Transnet and the SIU obtained an ex
parte order against funds of CRRC held in various South African bank
accounts and a final judgement in the matter is pending.
Transnet is preparing legal papers to pursue further civil recovery
in respect of parties implicated in SIU investigations and the
findings of the Zondo Commission Report.
Total SA and Sasol Oil v Transnet Pipelines
Total South Africa (Pty) Limited (Total) and Sasol Oil (Pty) Limited
(Sasol) initially brought separate action proceedings against
Transnet for contractual damages amounting, cumulatively, to over
ZAR1,8 billion. Litigation has been ongoing since 2013 by Total
and 2018 by Sasol.
Key performance area 1: Ensure financial sustainability
Operating ratio
%
≤62,5
65,7
Cash interest cover (CIC)
times
≥2,5
2,6
EBITDA margin
%
≥37,5
34,3
Return on invested capital (ROIC)
%
≥4,1
4,4
Current ratio
times
≥0,63
0,39
Gearing
%
≤48,4
45,5
Free cash flow
Percentage of cash flow
≥18
25,0
before capital investment
2425
Annual financial statements
Report of the directors
Report of the directorsfor the year ended 31 March 2022
Key performance area 2: Reduce the total cost of logistics, effect and accelerate modal shift in strategic growth segments
Total rail volumes
mt
≥208,83
173,1
Measurement instrument for the cost of logistics as a percentage of
Date
30 September 2021
Target achieved
transportable GDP finalised
Loss time injury frequency rate (LTIFR)
Ratio
≤0,75
0,69
Commercial/accounting separation of TNPA’s regulatory and
Date
31 March 2022
Not achieved.
landlord function finalised
The process to
amend the Ports
Act was still in
progress by
31 March 2022
Container segment
Rail containers (Natcor and Capecor)
TEUs
≥306 387
309 358
Port containers
‘000 TEUs
≥4 059
4 131
Automotive segment
Rail automotive units
units
229 389
135 356
Port automotive units
units
535 530
719 138
Coal segment
Export coal
mt
≥73,2
58,3
Eskom coal
mt
≥4,10
2,51
Chrome and magnetite
Chrome
mt
≥8,99
4,84
segment
Magnetite
mt
≥11,67
8,64
Iron ore segment and
Export iron ore
mt
≥59
54,6
manganese segment
Manganese
mt
≥16,27
14,48
Fuel segment
Rail liquid fuel
mt
≥1,4
0,54
Pipeline volumes
bℓ
≥14,00
15,35
Key performance area 3: Leverage private sector in the provision of both infrastructure and operations for strategic
growth segments
Date
30 September
Not achieved.
2021
The framework was under development
Private sector participation framework revised and approved.
and not approved by 30 September 2021
but was subsequently revised and
approved by the Board on 31 March 2022
Accounting separation of
Accounting separation of TFR
Date
31 March 2022
Target achieved
operations and rail
TFR operations and rail
infrastructure
infrastructure slot allocation
Slot allocation costs finalised
Date
31 March 2022
Target achieved
costs finalised.
Strategic segments
RFI for concession of the
Date
31 March 2022
Not achieved.
Automotive segment
Inland Terminal (Kaalfontein)
Business case development was in
issued to the market
progress as at 31 March 2022
Consolidation of all coal
Date
31 March 2022
Not achieved.
Coal segment
exports through Richards Bay
The consolidation enablers were under
development as at 31 March 2022
RFI for PSP transaction for
Date
31 March 2022
Not achieved.
the development of the Back
The approach has been re-evaluated as
of Port iron-ore and
there are concerns with the
Iron ore segment and
manganese facility in
environmental impact and the RFI was
Saldanha issued to the
still on hold as at 31 March 2022
manganese segment
market
Feasibility study for Sishen–
Date
31 March 2022
Target achieved
Saldanha rail operating lease
completed
Date
30 September
Not achieved.
Completion of the preparatory phase (viability, structuring
2021
Cape Town MPT analysis has been
and market consultation) for the Cape Town and Richards Bay
completed and the Richards Bay MPT
Multi-Purpose Terminals (MPT)
business case was in progress as at
30 September 2021
Cross-border revenue
R million
3 033
2 707
Financial close for the acquisition of 16% shareholding in
Date
31 March 2022
Not achieved.
Maputo Port Development Corporation (MPDC)
The preliminary due diligence, valuation,
conceptual funding solution, draft
business case, non-binding expression of
interest and negotiation term sheet
were not 100% achieved as at
31 March 2022
Maritime connectivity
Index
≥40,8
39,1
RFI to identify equity partner for TPT at Ngqura Container
31 December
Terminal issued to the market to drive the transhipment
strategy
Date
2021
Target achieved
Chrome and magnetite export volumes through Maputo
mt
7,11
6,15
Volumes on the North/South corridor
mt
0,412
0,35
Key performance indicator
measurement
target
actual
Container segment
Request for information (RFI)
Date
30 November
Not achieved.
for concession of the Durban
2021
Consultations with the transaction
Point Container Terminal
advisor was still in progress as at
project issued to the market
30 November 2021
RFI for an international
Date
30 September
Target achieved
terminal operator to partner
2021
at DCT Pier 2 issued to the
market
RFI for concession of the
Date
31 March 2022
Not achieved.
Inland Container Terminal
Business case development was in
Project (City Deep) issued to
progress as at 31 March 2022
market
Number of trainees
Number
≥450
445
Research and development spend (R million)
Number
≥119
98,3
Enterprise and supplier development
% of NOPAT
≥3
16,70
BBBEE level
Certification
2
2
level
Remuneration report
Details of directors’ remuneration are included in note 38 of the annual financial statements. A detailed remuneration report is included in the
integrated report on pages 96 to 100.
2627
Annual financial statements
Accounting policies
Accounting policiesfor the year ended 31 March 2022
The consolidated financial statements for the year ended 31 March
2022 comprise the Company and its subsidiaries (the Group) and
the Group’s interest in associates and joint ventures. The
consolidated financial statements were authorised for issue by the
Board of Directors on 25 July 2022.
Transnet has applied Directive 12 The Selection of an Appropriate
Reporting Framework by Public Entities; issued by the Accounting
Standards Board. The directive states that “An entity shall apply
International Financial Reporting Standards (IFRS) as its
rePorting framework if it meets the criteria in paragraph 11.
Otherwise it shall apply Standards of GRAP”.
Paragraph 11 provides that “In assessing whether an entity shall
apply IFRS Standards, it considers whether it meets one of the
following criteria:
(a)
the entity is a financial institution;
(b)
the entity has ordinary shares or potential ordinary shares that
are publicly traded on capital markets; or
(c)
its operations are such that they are:
(i)
commercial in nature; and
(ii)
only an insignificant portion of the entity’s funding is
acquired through government grants or other forms of
financial assistance from government.”
Transnet satisfies the criteria in paragraph 11 as its operations are
of a commercial nature which aim to provide services to generate
profits, and only an insignificant portion of the entity’s funding is
acquired through government grants or other forms of financial
assistance from government.
In addition, as an entity with publicly listed debt, Transnet is
required in terms of the listing requirements of the Johannesburg
Securities Exchange, London Stock Exchange and the
Luxembourg Stock Exchange to prepare its financial statements
under IFRS. Transnet therefore prepares its financial statements in
accordance with IFRS.
Statement of compliance
The Consolidated Financial Statements are prepared in accordance
with International Financial Reporting Standards (IFRS) issued by
the International Accounting Standards Board (IASB), and
applicable legislation.
Critical judgements and estimates
The preparation of financial statements in accordance with IFRS
requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
reported amounts of equity, assets and liabilities, revenue and
expenses. The estimates and underlying assumptions are based on
historical experience, independent experts’ advice and other factors
that are considered to be reasonable under the circumstances.
Actual results may differ from estimates. Judgements, estimates and
assumptions that have a significant effect on the financial
statements are disclosed in the relevant notes to the financial
statements.
Basis of preparation
The consolidated financial statements are presented in South
African Rand, which is the Company’s functional currency,
rounded to the nearest million.
28
The financial statements are prepared on the going-concern basis
using accrual accounting and the historical cost convention, except
for certain financial instruments and investment property which are
measured at fair value, non-current assets held-for-sale which are
measured at the lower of carrying amount and fair value less costs-
to-sell and certain classes of property, plant and equipment which
are measured using the revaluation model.
Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services at
the transaction date.
Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether that
price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or a liability, the
Group takes into account the characteristics of the asset or liability if
market participants would take those characteristics into account
when pricing the asset or liability at the measurement date. Fair
value for measurement and/or disclosure purposes is determined on
the above basis, except for measurements that have some
similarities to fair value but are not fair value, such as net realisable
value in IAS 2 Inventories or value in use in IAS 36 Impairment of
Assets.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
•
Level 1 inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities that the Group can access at the
measurement date;
•
Level 2 inputs are inputs, other than quoted prices included within
Level 1, that are observable for the asset or liability, either directly
or indirectly; and
•
Level 3 inputs are unobservable inputs for the asset or liability.
Except as otherwise disclosed, these accounting policies are
consistent with those applied in previous years and are consistently
applied across the Group.
Basis of consolidation
Subsidiaries
Subsidiaries (including structured entities) are entities over which
the Group has control. The Group controls an entity when it is
exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its
power over the entity. The consolidated financial statements include
the results of subsidiaries from the effective date of acquisition to the
effective date of disposal.
The Group applies the acquisition method to account for business
combinations. The cost of acquisition for a subsidiary is the fair
value of the assets transferred, the liabilities incurred to the
previous owners and equity interests issued by the Group.
Acquisition related costs are expensed as incurred.
Inter-company transactions, balances and unrealised gains on
transactions between Group entities are eliminated on
consolidation. Unrealised losses are also eliminated unless
the transaction provides evidence that the asset transferred is
impaired.
Investments in equity-accounted investees
Equity-accounted investees comprise of investments in associates
and joint ventures. The investments are accounted for using the
equity method in the consolidated financial statements. The
investments are measured at cost, including goodwill, plus the
Group’s share of post-acquisition reserves less any accumulated
impairment losses.
Unrealised profits and losses on transactions with equity-accounted
investees are eliminated to the extent of the Group’s interest in the
equity-accounted investees, except to the extent that the losses
provide evidence that the asset transferred is impaired.
Associates
Associates are entities over which the Group exercises significant
influence, but not control or joint control of the financial and
operating policies of the entity. Significant influence is presumed in
instances where the Group has an equity stake greater than 20%
but less than 50% in an entity.
Joint ventures
A joint venture is a contractual arrangement whereby the Group and
another party undertake an economic activity that is subject to joint
control, i.e. where decisions about the relevant activities require the
unanimous consent of the parties sharing control and the parties to
the joint venture have rights to the net assets of the arrangement.
A list of significant subsidiaries, associates and joint ventures is
provided in note 37 of the annual financial statements.
Separate financial statements
In the Company’s separate financial statements, investments in
subsidiaries and equity-accounted investees are measured at cost
less any accumulated impairment losses.
Revenue
Revenue from contracts with customers
Revenue is recognised when control of promised goods or services
is transferred to a customer at an amount that reflects the
consideration the Group expects to receive in exchange for those
goods or services. The Group accounts for contracts with customers
when it has approval and commitment from both parties, each
party’s rights have been identified, payment terms are defined, the
contract has commercial substance and collection of the
consideration is probable.
For contracts that involve multiple performance obligations, the
Group allocates the transaction price to each performance
obligation in the contract based on relative stand-alone selling
prices and recognises revenue as and when each performance
obligation in the contract is satisfied. Where stand-alone selling
prices are not available, the Group estimates the stand-alone selling
price based on the expected cost plus margin approach.
Certain customer agreements include variable consideration in the
form of take-or-pay charges, volume based rebates or discounts,
penalties and additional revenue based on meeting certain
performance targets which affect the transaction price. Variable
consideration is recognised as revenue to the extent that it is highly
probable that a significant reversal in the amount of cumulative
revenue recognised will not occur. Variable consideration is
recognised based on management’s best estimate of the expected
amount, taking into account available historical, current and
forecasted information – and where applicable, following verification
processes or confirmation with the customer.
Revenue is recognised net of value-added tax, and excludes
any amounts collected on behalf of third parties.
Payments received from customers in advance of the Group
satisfying its performance obligations are initially recognised as
contract liabilities. Amounts owing to the Group for goods or
services rendered but not yet invoiced are recognised in the
financial statements as contract assets.
The Group applies the following practical exemption in IFRS 15:
•
The Group does not adjust the consideration for the effects of a
significant financing component if it expects, at contract
inception, that the period between the transfer of goods or
services to a customer and payment will be one year or less.
The Group generates revenue from the following principal activities.
Freight Rail
Freight Rail generates revenue from the transportation of bulk,
break-bulk and containerised freight over the Group’s rail network,
and from the provision of broadband electronic communication
services through its fibre optic cable network.
Rail freight services are based either on the standard conditions of
carriage, the rail transport agreement, and where applicable,
customer-specific contracts that establish the terms and conditions
for rail freight services offered by the Group. For revenue recognition
purposes, an agreement for the movement of freight over rail exists
when a service request is received from a customer and is accepted
by the Group.
The transaction price is generally determined for each customer
when the service request is received based on their requirements,
except where there is a customer specific contract in place, in which
case the contractual rates will apply.
Revenue from the movement of freight over rail is recognised over
time over the period of the contract and is measured based on the
volumes delivered to the customer. This method provides a faithful
depiction of the Group’s transfer of services to the customer as the
performance obligation is satisfied on delivery of the consignment
to the customer.
Revenue from the provision of broadband electronic communication
services is recognised over time, based on the services is provided
to the customer during that period.
The payment terms are 25 days from statement date – which is
generally the 25th day of the month.
29
Annual financial statements
Accounting policies
Accounting policies
Engineering
Engineering generates revenue from the following services:
•
Manufacture, assembly, and supply of rolling stock (new
and refurbished) and related components;
•
Overhaul and refurbishment of rolling stock;
•
Ad-hoc maintenance of rolling stock and specialised equipment;
•
Supply of spare parts; and
•
Shipping.
Under the terms of the contracts with customers, the Group is
restricted from redirecting the items manufactured or maintained to
another customer and has an enforceable right to payment for work
done.
The revenue is recognised over time as services are rendered
using the cost-to-cost method based on the proportion of contract
costs incurred for work performed to date relative to the estimated
total contract costs. Contract costs exclude any amounts incurred
that do not contribute to the Group’s progress in satisfying its
performance obligations. As costs are generally incurred uniformly
as the work progresses and are considered to be proportionate to
the Group’s performance, the cost-to-cost method provides a
faithful depiction of the Group’s transfer of goods and services to
the customer.
The Group applies judgement in measuring variable consideration
arising from contractual penalties based on historical information
and the latest estimates of progress on the contract compared to
targets.
A contract asset is recognised over the period in which the services
are performed representing the Group’s right to receive
consideration for services performed to date which have not yet
been invoiced. The Group invoices customers on attainment of
contractual milestones. At this point, contract assets are reclassified
to trade receivables. If a milestone payment exceeds the revenue
recognised to date under the cost-to-cost method, the Group
recognises a contract liability for the difference.
Some goods sold by Engineering include warranties which require
the Group to correct defective products during the warranty period if
the goods fail to comply with agreed-upon specifications. In
accordance with IFRS 15, such warranties are not accounted for as
separate performance obligations and no revenue is allocated to
them. Instead, a provision is raised for the costs of satisfying the
warranties in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets.
The payment terms are 25 days from statement date – which is
generally the 25th of the month.
National Ports Authority
National Ports Authority generates revenue from the provision of
access to port infrastructure, including waterside and landside
services; provision of port services which includes pilotage,
berthing, craft assistance and ship repairs among others, and
commission from the collection of levies from customers on behalf
of the South African Maritime Safety Authority (SAMSA).
for the year ended 31 March 2022
For revenue recognition purposes, an agreement for the provisions
of access to port infrastructure services and port services exists
when an order is received from a customer, is accepted by the
Group and the vessel has called into the port.
The transaction price for access to port infrastructure services and
port services is regulated, and is based on published tariffs for each
service as determined by the Ports Regulator of South Africa.
Revenue in respect of access to the port infrastructure is recognised
over-time at the applicable tariff based on time spent by the vessel
within the port. Revenue in respect of port services is recognised
over-time at the applicable tariff based on the actual activity or work
performed to date on the vessel. Commission received from
collection of levies on behalf of SAMSA is recognised as a
percentage of the revenue collected from customers during the
period.
The payment terms are 25 days from statement date – which is
generally the 25th of the month.
Port Terminals
Port Terminals generates revenue from the handling and storage of
cargo at various port terminals across South Africa. For revenue
recognition purposes, an agreement for the handling and storage of
cargo exists when an order is received from a customer and is
accepted by the Group.
The transaction price in respect of containers is based on published
tariffs, and for non-container cargo is based either on the base price
applicable to all customers or, where applicable, on the contractual
rate agreed with the customer.
Revenue is recognised over time based on actual volumes
handled (loading/unloading of vessels) and actual storage time
provided to the customer.
Performance based variable consideration arising from the handling
of cargo is constrained due to the fact that the achievement of
targets is affected by a number of factors outside the control of the
Group, especially the weather. The revenue is only recognised
when the work on the vessel is complete and the agreed targets
have been met.
The payment terms are 25 days from statement date – which is
generally the last day of the month.
Pipelines
Pipelines generates revenue from transportation of petroleum
products (crude, refined and avtur) and gas products through the
Group’s pipeline network, handling and storage of refined products
and additive dosing.
For revenue recognition purposes, the acceptance of an order
placed by the customer constitutes an agreement concluded by the
Group and the customer in respect of services to be rendered.
The transaction price for the transportation of petroleum and gas
products, and the handling and storage of refined petroleum
products is regulated, and is based on published tariffs as
determined by the National Energy Regulator of South Africa. The
transaction price for additive dosing of refined products is based on
the contractual rate agreed with the customer.
Revenue from transportation of petroleum and gas products is
recognised overtime and is measured based on the volumes
delivered to the customer. This method provides a faithful depiction
of the Group’s transfer of services to the customer as the
performance obligation is satisfied on delivery of product to the
customer. Revenue from handling and storage of refined products
and additive dosing is recognised over time as the Group renders
services to the customer.
The payment terms are 25 days from statement date – which is
generally the last day of the month.
Other revenue
Lease income
National Ports Authority, Properties and Freight Rail generate
revenue from the leasing of certain investment property and
property, plant and equipment. Lease income is recognised on a
straight- line basis over the lease term in accordance with the
substance of the relevant agreements. Lease incentives granted are
recognised as an integral part of the total lease income.
Government grants
Government grants are recognised at fair value when there is
reasonable assurance that the grant will be received and all
relevant conditions will be complied with.
Where the grant relates to an expense item, it is recognised as
income in profit or loss over the periods necessary to match the
grant on a systematic basis to the costs that it is intended to
compensate.
Where the grant relates to an asset, the fair value is credited to a
deferred income account and is released to profit or loss over the
expected useful life of the relevant asset on a straight-line basis.
Other income
Dividend income
Dividend income is recognised on the date the Group’s right
to receive payments is established, which in the case of
quoted securities is the ex-dividend date.
Finance income and finance costs
The Group’s finance income and finance costs comprise:
•
Interest income;
•
Interest expense, including amortisation of discounts and
premiums on bonds;
•
Foreign exchange gains and losses; and
•
Net gains or losses on de-recognition of financial assets and
financial liabilities carried at amortised cost.
Finance costs excludes amounts capitalised to qualifying assets
(see below).
Interest income and interest expense are recognised separately in
profit or loss using the effective interest method. The effective
interest rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial
instrument to:
•
The gross carrying amount of the financial asset; or
•
The amortised cost of the financial liability.
In calculating interest income and interest expense, the effective
interest rate is applied to the gross carrying amount of the asset
(when the asset is not credit-impaired) or to the amortised cost of
the liability. However, for financial assets that have become credit-
impaired subsequent to initial recognition, interest income is
calculated by applying the effective interest rate to the amortised
cost of the financial asset. If the asset is no longer credit-impaired,
then the calculation of interest income reverts to the gross basis.
Borrowing costs
Borrowing costs comprise interest expense and foreign exchanges
gains and losses (including hedge accounting adjustments), to the
extent that they are regarded as an adjustment to the interest
expense.
The Group capitalises borrowing costs that are directly attributable
to the acquisition, construction or production of a qualifying asset,
as part of the cost of that asset, until such time that the asset is
substantially ready for its intended use. The Group identifies a
qualifying asset as one that necessarily takes more than six months
to get ready for its intended use.
To the extent that funds are borrowed specifically for the purpose
of obtaining a qualifying asset, the Group capitalises the actual
borrowing costs incurred less any investment income on the
temporary investment of the borrowed funds. To the extent that a
qualifying asset is funded through general borrowings, the Group
determines borrowing costs eligible for capitalisation by applying
the weighted average cost of borrowings in the period, other than
borrowings raised specifically for the purpose of obtaining
qualifying assets, to the expenditures on qualifying assets.
Where a specific borrowing remains outstanding after the related
asset is ready for its intended use or sale, it becomes part of the
general borrowings pool for purposes of calculating the
capitalisation rate on general borrowings.
Capitalisation of borrowing costs is suspended during extended
periods in which the Group suspends the active development of
a qualifying asset.
All other borrowing costs are recognised in profit or loss in the
period in which they are incurred.
Foreign currency transactions
Transactions in currencies other than the Company’s functional
currency are defined as foreign currency transactions. Transactions
in foreign currencies are translated into Rand at exchange rates
ruling on transaction date or at the average rate of exchange for
transactions that occur regularly throughout the year.
Monetary assets and liabilities denominated in foreign currencies
are translated into Rand at the rate of exchange ruling at the
reporting date. Non-monetary items measured at historical cost in a
foreign currency are translated at the exchange rates ruling at the
original transaction date, while those items measured at fair value
are translated at the exchange rate ruling when the fair value was
determined.
3031
Annual financial statements
Accounting policies
Accounting policiesfor the year ended 31 March 2022
Exchange differences are recognised in profit or loss as finance
costs in the period in which they arise except for:
•
Exchange differences relating to assets under construction which
are included in the cost of those assets to the extent they are
regarded as an adjustment to interest costs on foreign currency
borrowings – see above under ‘Borrowing costs’;
•
Exchange differences on hedges of foreign currency risk –
see below under ‘Derivative financial instruments and hedge
accounting’; and
•
Exchange differences on monetary items receivable from or
payable to a foreign operating entity for which settlement is
neither planned nor likely to occur, which form part of the net
investment in the foreign operation and are initially recognised in
the foreign currency translation reserve and subsequently
recognised in profit or loss on disposal of the investment.
Fair value adjustments arising on acquisition of a foreign entity are
treated as assets and liabilities of the foreign entity and translated
at the rates of foreign exchange ruling at the reporting date.
On consolidation, exchange differences arising from the translation
of the net investment in foreign operations and of related hedges,
where hedge accounting is applied, are recognised in equity. Upon
disposal, the translation differences are recognised in profit or loss
as part of the gain or loss on disposal.
Tax
Income tax for the period comprises current and deferred tax.
Income tax is recognised in profit or loss, except to the extent that
it relates to items recognised directly in equity, in which case the
tax is also recognised in equity.
Current tax
Current tax is the amount of income taxes payable in respect of the
taxable profit for the current period and any adjustment to tax
payable in respect of previous years. It is calculated using tax rates
that have been enacted or substantively enacted at the reporting
date.
Deferred tax
Deferred tax is recognised on temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements. Deferred tax is not recognised
if it arises from the initial recognition of goodwill, the initial
recognition of assets and liabilities, other than in a business
combination, which affect neither accounting nor taxable profit or
loss, and differences relating to investments in subsidiaries,
associates and joint ventures to the extent that it is probable they
will not reverse in the foreseeable future.
Deferred tax liabilities are recognised for taxable temporary
differences associated with investments in subsidiaries, associates
and joint ventures, except where the Group is able to control the
timing of the reversal of the temporary differences and it is probable
that it will not reverse in the foreseeable future. Deferred tax assets
are recognised only to the extent that it is probable that future
taxable profits will be available against which the temporary
differences can be utilised. The Group assesses the recoverability of
its deferred tax assets annually when it prepares its Corporate Plan,
taking into consideration the expectation of future taxable profits
and availability of sufficient taxable temporary differences against
which the deferred tax assets can be utilised.
The measurement of deferred tax assets and liabilities reflects the
tax consequences that would follow from the manner in which the
Group expects to recover or settle the carrying amount of its assets
and liabilities, by applying tax rates that have been enacted or
substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset when they relate to
income taxes levied by the same tax authority and the Group has
the legal right to and intends to settle its current tax assets and
liabilities on a net basis.
The Group assesses its intention at the reporting date on recovering
an asset or liability to the extent that this intention influences the rate
of taxation to be applied in calculating deferred taxation. The Group
recognises deferred taxation as follows:
Land
As land is deemed to be realised through sale, there is no
deferred tax effect on the difference between the tax base and the
original cost of the land. Deferred taxation is calculated on the
difference between the carrying amount and the capital gains
taxation (CGT) base cost at the CGT rate.
Assets in respect of which no taxation allowances
are granted
No deferred taxation is raised in the case where neither the
accounting nor the taxation profit is affected. Where the asset is
revalued, deferred taxation is calculated based on the Group’s
intention. Where the intention is to sell the asset, deferred taxation is
raised at the CGT rate on the difference between the CGT base cost
and the revalued carrying amount. Where the intention is to use the
asset, deferred taxation is raised at the usage rate on the difference
between the taxation base and the revalued carrying amount.
Assets (other than land) carried at cost
Where an asset is carried under the cost model and a taxation
allowance is available to be claimed against the asset, deferred
taxation is calculated on the difference between the carrying
amount and the taxation base at the usage rate.
Assets (other than land) carried at the revalued
amount with the intention to use
As the future benefits are expected to flow from the use of the
assets, deferred taxation is calculated at the usage rate on the
difference between the taxation base and the revalued carrying
amount.
Assets (other than land) carried at the revalued
amount with the intention to sell
Where the intention is to recover the benefits of the asset through
sale, deferred taxation is calculated at usage rate on the difference
between the taxation base and the original cost, and at the CGT
rate on the difference between the CGT base cost and the revalued
carrying amount.
Assets (other than land) carried at the revalued
amount with the intention to use and sell
Where the intention is to recover the benefits of the asset through
both use and sale, deferred taxation is calculated to reflect this
intention. Deferred taxation is calculated at the usage rate on the
difference between the taxation base and the original cost, at the
CGT rate on the difference between the CGT base cost and the
future selling price (residual value), and at the usage rate on the
difference between the future selling price and revalued carrying
amount.
Investment property (other than land) carried at
fair value
Deferred taxation on depreciable investment property (i.e.
buildings) carried at fair value is calculated at the usage rate on the
difference between the taxation base, where taxation allowances
are available, and the original cost, and at the CGT rate on the
difference between the CGT base cost and the fair value. Where
the depreciable investment property is held within a business model
whose objective is to consume substantially all of the asset’s
economic benefits over the life of the asset, deferred taxation is
calculated at the usage rate on the difference between the taxation
base and fair value.
Property, plant and equipment
Recognition and initial measurement
Property, plant and equipment is initially recognised at cost, and
subsequently stated at cost or revalued amount less accumulated
depreciation and any accumulated impairment losses.
Cost includes expenditure that is directly attributable to the
acquisition or construction of an asset including, where applicable,
cost of materials, direct labour, an appropriate allocation of
overheads, the initial estimate of the costs of dismantling and
removing the item and restoring the site on which it is located,
capitalised borrowing costs and adjustments in respect of hedge
accounting.
Capital work-in-progress comprises expenditure incurred in the
construction, manufacture or production of assets which are not yet
completed and are therefore not available for use. Advance
payments to original equipment manufacturers in respect of the
construction, manufacture or production of these assets are
included in capital work-in-progress when all conditions precedent
under the contract have been met, the activities necessary to
construct or prepare the asset for its intended use; including
technical and administrative work, have commenced and the Group
has control over the assets under construction or production.
Borrowing costs are capitalised in accordance with the accounting
policy on Borrowing Costs.
Where components of an item of property, plant and equipment
have a cost that is significant in relation to the total cost of the item
and have different useful lives, they are accounted for as separate
components of property, plant and equipment.
Spare parts, standby and servicing equipment are classified as
property, plant and equipment if they are expected to be used during
more than one period. Otherwise, they are classified as inventory.
Subsequent costs
The Group recognises in the carrying amount of an item of property,
plant and equipment the cost of replacing part of the item when it is
probable that the future economic benefits will flow to the Group and
the cost of the item can be measured reliably. The carrying amount
of the replaced part is derecognised. All other repairs and
maintenance costs are recognised as expenses when incurred.
Costs of major repairs and overhauls of property, plant and
equipment are recognised as separate components of the asset if
the recognition criteria are met. The carrying amount of components
that are replaced is derecognised.
Assets measured under the revaluation
model
Certain assets are carried at their revalued amounts, being the fair
value at the date of revaluation, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
Revaluations are performed by applying internationally recognised
and appropriately benchmarked valuation techniques. The
revaluations are performed with sufficient regularity such that the
carrying amount does not differ materially from that which would be
determined using fair values at the end of the reporting period.
The Group applies the valuation methods below in revaluing its
assets:
Asset class
Revaluation method
Rail
•
Depreciated optimised replacement cost *
infrastructure
•
Discounted cash flows
Port
•
Depreciated optimised replacement cost *
infrastructure
•
Discounted cash flows
Port operating
•
Depreciated replacement cost *
assets
•
Discounted cash flows
Pipeline
•
Depreciated replacement cost *
networks
•
Discounted cash flows
*
Formal revaluations are performed by independent professional valuation
experts on a three-year cycle. Indices are applied in the intervening periods,
where appropriate.
Management assesses the reasonableness of the fair values
determined using the different methods and selects the point within
the range that is most representative of the fair value of the assets in
the circumstances.
Revaluation surpluses are recognised in the revaluation reserve in
equity, except to the extent that they reverse a revaluation decrease
for the same asset previously recognised in profit or loss, in which
case the surplus is credited to profit or loss. A revaluation decrease
in the carrying amount of an asset is recognised as an impairment
loss to the extent that it exceeds the balance, if any, held in the
revaluation reserve relating to a previous revaluation of the same
asset.
When an item of property, plant and equipment is revalued, the
gross carrying amount and any accumulated depreciation at the date
of revaluation are adjusted in a manner consistent with the
revaluation of the carrying amount of the asset.
3233
Annual financial statements
Accounting policies
Accounting policies
Depreciation
Depreciation is recognised in profit or loss on a straight-line basis
over the estimated useful life, or the lease term if shorter, of each
item or component of an item of property, plant and equipment.
Land (excluding land improvements) and capital work-in-
progress are not depreciated.
Major repairs and overhauls are depreciated over the remaining
useful life of the related asset or to the date of the next major
repair or overhaul, if shorter. Depreciation commences when the
asset is available for use. Property, plant and equipment are
depreciated over the following periods:
Asset class
Years
Land improvements
5
– 30
Buildings and structures
10
– 50
Buildings and structures components
5
– 25
Permanent way and works
3
– 95
Rail infrastructure
3
– 95
Aircraft including components
8
– 15
Pipelines including network components
6
– 75
Port infrastructure
12 – 100
Floating craft including components
5
– 40
Port operating equipment including components
3
– 40
Rolling stock
30
– 60
Rolling stock components
25
– 60
Containers
10
– 20
Vehicles
3
– 15
Machinery, equipment and furniture
3
– 50
The useful lives, depreciation methods and the residual values of
assets are reviewed and adjusted annually, if appropriate.
Changes resulting from this review are accounted for prospectively
as a change in accounting estimate.
Derecognition
Items of property, plant and equipment are derecognised when they
are either disposed of or when no future economic benefits are
expected to flow from their use or disposal. Any gain or loss arising
on the disposal or retirement of an item of property, plant and
equipment is calculated as the difference between the sales
proceeds (if any) and the carrying amount of the asset, and is
recognised in profit or loss.
On disposal or de-recognition of a revalued asset, the revaluation
surplus previously included in the revaluation reserve in respect of
that asset is transferred to retained earnings.
Investment property
Recognition and measurement
Investment property is land or a building or a portion thereof held by
the Group to earn rentals and/or for capital appreciation, including
properties under construction for such purposes. Investment
property is initially measured at cost. Subsequent to initial
recognition, investment property is measured at fair value as
determined at each reporting date. Gains and losses arising from
changes in the fair value are recognised in profit or loss in the period
in which they arise.
for the year ended 31 March 2022
When an item of property, plant and equipment is transferred to
investment property following a change in its use, any difference
between the carrying amount of the item immediately prior to
transfer and its fair value is treated as a revaluation in accordance
with the accounting policy on revaluation of property, plant and
equipment.
If an investment property becomes owner-occupied, it is reclassified
to property, plant and equipment and its fair value at the date of the
reclassification becomes its deemed cost for subsequent accounting
purposes.
The Group has properties with multiple buildings on a single erf or
multiple erfs called a precinct. Some buildings within the precinct
may be owner occupied and others rented to third parties or vacant.
Some properties comprise a portion that is held to earn rentals or for
capital appreciation and another portion held for use in the
production or supply of goods or services or for administrative
purposes (owner-occupied). If the portions could be sold separately
or leased out separately under a finance lease, the Group accounts
for the different portions separately as investment property or
property, plant and equipment. If the portions are not separable, the
entire property is only classified as investment property if an
insignificant portion is owner-occupied; otherwise the entire property
is classified as property, plant and equipment.
Properties which were acquired for administrative purposes but are
currently occupied by a third party tenant with a long term lease in
excess of five years are classified as investment property even
though there may be no plans to dispose of the assets. If the lease
term is less than five years, the asset is not classified as investment
property.
The Group’s intention in respect of back of port properties is to hold
them strategically for future development. Until the future strategic
purpose of these properties is formalised through the relevant
governance structures, they are considered to be held for capital
appreciation and classified as investment property.
For valuation purposes the income method is applied, which entails
the capitalisation of the normalised net annual income from the
property to determine the fair value. Vacant land held for capital
appreciation or future development is valued in terms of the
comparison method which takes into consideration the market
prices of similar recently sold properties.
Derecognition
Investment property is derecognised when it is either disposed of or
permanently withdrawn from use and no future economic benefits
are expected from its disposal. The difference between the net
disposal proceeds and the carrying amount of the asset on
retirement or disposal is recognised in profit or loss.
Intangible assets
Software and licences
Software and licences are initially recognised at cost and
subsequently measured at cost less accumulated amortisation
and any accumulated impairment losses.
The cost of licences is amortised in profit or loss on a straight-line
basis over the licence period. Costs of maintaining computer
software programs are recognised as an expense as incurred.
Research and development
Expenditure on research to gain new technical knowledge and
understanding, including conceptual studies, pre-feasibility studies
and feasibility studies that do not satisfy the requirements for
capitalisation as development expenditure is recognised as an
expense when incurred.
Development expenditure on the production of new or substantially
improved products or processes, including feasibility studies, is
recognised as an asset if the costs can be measured reliably, the
products or processes are technically and commercially feasible,
future economic benefits are probable, and the Group intends to,
and has sufficient resources to complete development and to use or
sell the product or process.
Cost includes expenditure on materials, direct labour and an
allocated portion of project overheads. Development costs that do
not meet the recognition criteria are recognised in profit or loss as
incurred.
Servitudes
Servitudes arising from a binding agreement are recognised as
either a separate intangible asset or as part of the related item of
property, plant and equipment – depending on whether the
intangible or tangible asset is considered the more significant
element of the combined asset.
Amortisation
Intangible assets not yet available for use are not amortised and are
measured at cost less accumulated impairment losses. Intangible
assets with a finite useful life are measured at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is recognised on a straight-line basis over their
estimated useful lives. The estimated useful life and amortisation
method are reviewed at the end of each annual reporting period, and
the effect of any changes is accounted for prospectively as a change
in accounting estimate. The estimated useful lives are as follows:
Asset class
Years
Software
3 – 5
Licences
Licence period
Derecognition
Intangible assets are derecognised when they are either disposed of
or when no future economic benefits are expected from their use or
disposal. The difference between the net disposal proceeds, if any,
and the carrying amount of the asset on derecognition is recognised
in profit or loss.
Impairment of non-financial assets
The Group’s tangible and intangible assets, other than investment
property, non-current assets held-for-sale, inventories and deferred
tax assets are assessed for indicators of impairment at each
reporting date. Indicators of impairment include factors such as a
change in the use of the asset, technological obsolescence,
physical damage, change in market conditions – including interest
rates, change in the legal environment and other factors affecting
the economic performance of the asset. If such indicators exist, the
recoverable amount of the asset is estimated. Intangible assets not
yet available for use are tested for impairment annually and
whenever there are indicators of impairment.
Where an asset does not generate cash flows that are independent
from other assets, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs. The Group
considers its operating divisions as separate cash-generating units.
If the recoverable amount of an asset or cash-generating unit is less
than its carrying amount, the carrying amount is reduced to the
recoverable amount. An impairment loss is recognised immediately
in profit or loss, unless the asset is measured at a revalued amount,
in which case the impairment loss is treated as a revaluation
decrease to the extent of the balance in the revaluation reserve
relating to the same asset. Impairment losses recognised in respect
of a cash-generating unit are allocated to reduce the carrying
amount of the assets in the cash-generating unit on a pro-rata basis.
Calculation of recoverable amount
The recoverable amount of an asset or cash-generating unit is the
higher of its fair value less costs of disposal and its value-in-use.
Fair value less costs of disposal is the current market value of the
asset less any costs relating to the realisation of the asset. In
assessing the value-in-use, the expected future cash flows from the
asset are discounted to their net present values using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
future cash flows have not been adjusted.
Reversal of impairment
A previously recognised impairment loss is reversed if the
recoverable amount increases as a result of a change in the
estimates previously used to determine the recoverable amount, to
an amount not higher than the carrying amount that would have
resulted, net of depreciation or amortisation, had no impairment loss
been recognised. A reversal of an impairment loss is recognised
immediately in profit or loss, unless the asset is carried at a revalued
amount, in which case the reversal is treated as a revaluation
increase.
Financial instruments
Recognition and initial measurement
Trade receivables, lease receivables and debt securities are initially
recognised when they are originated. All other financial assets and
financial liabilities are initially recognised when the Group becomes
a party to the contractual provisions of the instrument.
Financial assets (except for trade receivables without a significant
financing component) or financial liabilities are initially measured at
fair value plus or minus, for items not at fair value through profit or
loss (FVTPL), transaction costs that are directly attributable to their
acquisition or issue. Trade receivables without a significant financing
component are initially measured at the transaction price.
The best evidence of the fair value of a financial instrument at initial
recognition is normally the transaction price (i.e. the fair value of the
consideration given or received). If the Group determines that the fair
value at initial recognition differs from the transaction price, the
Group nevertheless recognises the financial instrument at its fair
value and accounts for the difference at that date as follows:
3435
Annual financial statements
Accounting policies
Accounting policiesfor the year ended 31 March 2022
•
If the fair value is evidenced by a quoted price in an active market
for an identical asset or liability (i.e. a Level 1 input) or based on a
valuation technique that uses only data from observable markets,
the Group recognises the difference between the fair value at
initial recognition and the transaction price, also referred to as
‘day 1 profit or loss’ in profit or loss on the fair value line.
•
In all other cases, the Group defers the day 1 profit or loss on the
statement of financial position in ‘other financial assets’. After
initial recognition, the Group recognises the deferred day 1 profit
or loss in profit or loss – on the fair value line – only to the extent
that it arises from a change in a factor (including time) that market
participants would take into account when pricing the asset or
liability. Any amounts not recognised in profit or loss before the
date of maturity or de-recognition of a financial instrument are
recognised in profit or loss on that date.
On initial recognition of an equity investment that is not held for
trading, the Group may irrevocably elect to present subsequent
changes in the investment’s fair value in OCI. This election is
made on an investment-by-investment basis.
The Group’s financial assets measured at FVTOCI include
investments in equity designated as such on initial application
of IFRS 9 and government bonds.
All financial assets not classified as measured at amortised cost or
at FVTOCI as described above are measured at FVTPL. This
includes all derivative financial assets. On initial recognition, the
Group may irrevocably designate a financial asset that otherwise
meets the requirements to be measured at amortised cost or at
FVTOCI as at FVTPL if doing so eliminates or significantly reduces
an accounting mismatch that would otherwise arise.
In assessing whether the contractual cash flows are solely payments
of principal and interest, the Group considers the contractual terms
of the instrument. The group also considers the following:
•
Contingent events that could change the amount or timing of cash
flows;
•
Terms that may adjust the contractual coupon rate, including
variable rate features;
•
Prepayment and extension features; and
•
Terms that limit the Group’s claim to cash flows from specified
assets (e.g. non-recourse features).
The assessment also includes whether the financial asset contains
a contractual term that could change the timing or amount of the
contractual cash flows such that it would not meet this condition.
A prepayment feature is consistent with the solely payments of
principal and interest criterion if the prepayment amount substantially
represents unpaid amounts of principal and interest on the principal
outstanding, which may include reasonable additional compensation
for early termination of the contract. Additionally, for a financial asset
acquired at a significant discount or premium to its contractual par-
amount, a feature that permits or requires prepayment at an amount
that substantially represents the contractual par amount plus
accrued (but unpaid) contractual interest (which may also include
reasonable additional compensation for early termination) is treated
as consistent with this criterion if the fair value of the prepayment
feature is insignificant at initial recognition.
Classification and subsequent measurement
On initial recognition, a financial asset is classified as measured at
either (i) amortised cost, (ii) at fair value through other
comprehensive income (FVTOCI), or (iii) at fair value through profit
or loss.
Financial assets are not reclassified subsequent to their initial
recognition unless the Group changes its business model for
managing financial assets in which case all affected financial
instruments are reclassified on the first day of the financial year
following the change in the business model.
A financial asset is measured at amortised cost if it meets both of
the following conditions and is not designated at FVTPL on initial
recognition:
Business model assessment
The Group makes an assessment of the objective of the business
model in which a financial asset is held at a portfolio level as this
best reflects the way the business is managed and the information
provided to management, namely the Group Exco. The Group
considers the following sources of information in making the
assessment:
• The stated policies and objectives of the portfolio and operation
of these policies in practice. These include whether management’s
strategy focuses on earning contractual interest income,
maintaining a particular interest rate profile, matching the
duration of the financial assets to the duration of any related
liabilities or expected cash out flows or realising cash flows
through the sale of assets;
Subsequent measurement and gains and losses
Financial assets at FVTPL
Subsequently measured at fair value. Net gains and losses, including any interest or dividend income,
are recognised in profit or loss unless they are part of an effective hedge accounting relationship (see
policy on derivative financial instruments and hedge accounting).
Financial assets at amortised cost
Subsequently measured at amortised cost using the effective interest method. The amortised cost is
reduced by impairment losses. Interest income, foreign exchange gains or losses and impairment are
recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.
Debt investment at FVTOCI
Subsequently measured at fair value. Interest income calculated using the effective interest rate
method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net
gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are
reclassified to profit or loss.
Equity investment at FVTOCI
Subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the
dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses
are recognised in OCI and are never reclassified to profit or loss.
•
It is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
•
Its contractual terms give rise on specified dates to cash flows that
are solely payments of principal plus interest on the principal
amount outstanding.
The Group’s financial assets measured at amortised cost include
trade and other receivables, contract assets, repurchase
agreements, commercial paper, short-term deposits and cash and
cash equivalents. Cash and cash equivalents comprise cash at
bank and on hand, and highly liquid instruments which are readily
convertible to known amounts of cash within 90 days from date of
acquisition, subject to an insignificant risk of change in value.
For the purposes of the statement of cash flows, cash and
cash equivalents include bank overdrafts.
A debt investment is measured at FVTOCI if it meets both of the
following conditions and is not designated at FVTPL on initial
recognition:
•
It is held within a business model whose objective is achieved by
both collecting contractual cash flows and selling financial assets;
and
•
Its contractual terms give rise on specified dates to cash flows that
are solely payments of principal plus interest on the principal
amount outstanding.
• How the performance of the portfolio is evaluated and reported
to the Group’s management;
• The risks that affect the performance of the business model (and
the financial assets held within that business model) and how
those risks are managed;
• How the managers of the assets are compensated – e.g. whether
compensation is based on the fair value of the assets managed or
the contractual cash flows collected; and
• The frequency, volume and timing of sales of financial assets in
prior periods, the reasons for such sales and expectations about
future sales activity.
Transfers of financial assets to third parties in transactions that do
not qualify for derecognition are not considered sales for this
purpose, consistent with the Group’s continuing recognition of the
assets.
Financial assets that are held for trading or are managed and
whose performance is evaluated on a fair value basis are measured
at FVTPL.
Assessment of whether contractual cash flows
are solely payments of principal and interest
For the purposes of this assessment, principal is defined as the fair
value of the financial asset on initial recognition. Interest is defined
as consideration for the time value of money and for credit risk
associated with the principal amount outstanding during a particular
period of time and for other basic lending risks and costs (e.g.
liquidity and administrative costs), as well as a reasonable profit
margin.
Financial liabilities: classification, subsequent
measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or
at FVTPL. A financial liability is classified as at FVTPL if it is held-
for-trading, is a derivative or is designated as such on initial
recognition.
The Group’s financial liabilities measured at amortised cost include
bonds, loans, trade and other payables and accruals.
A financial liability may be designated at FVTPL on initial recognition
if: (a) the contract contains one or more embedded derivatives, (b)
such designation would eliminate an accounting mismatch that
would otherwise arise from measuring assets and liabilities or
recognising the gains or losses on them on different bases, or (c) a
group of financial liabilities or financial assets and financial liabilities
is managed and its performance is evaluated on a fair value basis,
in accordance with a documented risk management or investment
strategy and information about the group is provided internally on
that basis to management.
Financial liabilities at FVTPL are measured at fair value and the net
gains and losses, including any interest expense, are recognised in
profit or loss. Other financial liabilities are subsequently measured
at amortised cost using the effective interest rate method. Interest
expense, foreign exchanges gains and losses and gains or losses
on derecognition are recognised in profit or loss as finance charges,
unless they are capitalised to the cost of qualifying assets in
accordance with IAS 23 Borrowing Costs.
Impairment of financial assets
The Group uses all available information, in assessing and
measuring expected credit losses, including past events, current
conditions, reasonable and supportable forecasts that affect the
expected collectability of the future cash flows of the instrument.
In applying the forward-looking approach, a distinction is made
between:
•
Financial instruments that have not deteriorated significantly in
credit quality since initial recognition or that have low credit risk
(Stage 1); and
•
Financial instruments that have deteriorated significantly in credit
quality since initial recognition and whose credit risk is not low
(Stage 2).
3637
Annual financial statements
Accounting policies
Accounting policiesfor the year ended 31 March 2022
Stage 3 covers financial assets that have objective evidence of
impairment at the reporting date.
Under the general approach in IFRS 9, ‘12-month expected credit
losses’ are recognised for stage 1 – except for trade and lease
receivables and contract assets, where the simplified approach is
applied, and ‘lifetime expected credit losses’ are recognised for
stages 2 and 3.
The Group recognises loss allowances for expected credit
losses (ECLs) on:
•
Financial assets measured at amortised cost, which includes
trade and lease receivables, short term deposits and bank
balances;
•
Contract assets (as defined in IFRS 15 Revenue from
Contracts with Customers); and
•
Debt investments measured at FVTOCI.
Trade and lease receivables and contract assets
The Group applies the simplified approach in IFRS 9 in measuring
expected credit losses which uses a lifetime ECLs allowance for
all trade and lease receivables and contract assets. To measure
the ECLs; trade and lease receivables and contract assets are
grouped based on shared credit risk characteristics and the days
past due. The contract assets relate to unbilled work-in-progress
and have substantially the same credit risk characteristics as the
trade receivables for the same types of contracts. The Group
therefore applies the same probability of default rates for trade
receivables and the related contract assets.
The expected loss rates are based on the payment profiles of
customers over a 5 year period and the corresponding historical
credit losses experienced within this period. The historical loss rates
are adjusted to reflect current and forward looking information on
factors affecting the ability of the customers to settle the receivables.
This includes the customer’s credit risk profile, including their latest
credit scores, the general macro-economic conditions as well as
industry sector specific conditions affecting the Group’s customers.
Short-term deposits and bank balances
The Group’s short-term deposits and bank balances, which are
carried at amortised cost are considered to have low credit risk, and
the expected credit loss allowance recognised on these assets is
therefore limited to 12-months ECLs. Short term deposits and bank
balances are considered to be low credit risk when they have a low
risk of default and the issuer has a strong capacity to meet its
contractual cash flow obligations in the near term.
If the Group considers that credit risk on a financial instrument has
increased significantly since initial recognition, the expected credit
losses are estimated based on the lifetime ECLs.
Significant increase in credit risk
In assessing whether the credit risk on a financial asset has
increased significantly since initial recognition, the Group compares
the risk of a default occurring on the financial instrument as at the
reporting date with the risk of a default occurring on the financial
instrument as at the date of initial recognition. In making this
assessment, the Group considers both quantitative and qualitative
information that is reasonable and supportable, including historical
experience and forward-looking information that is available without
undue cost or effort.
Irrespective of the outcome of the above assessment, the Group
presumes that the credit risk on a financial asset has increased
significantly since initial recognition when contractual payments are
more than 30 days past due, unless the Group has reasonable and
supportable information that demonstrates otherwise.
Event of default
The Group considers the following as constituting an event of
default:
•
The debtor is more than 90-days past due (60 days for Transnet
Properties lease debtors); or
•
Information developed internally or obtained from external
sources indicates that the debtor is unlikely to pay its credit
obligations to the Group in full, without recourse by the Group to
actions such as realising security (if any is held).
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets
carried at amortised cost and debt securities at FVTOCI are credit-
impaired. A financial asset is credit-impaired when one or more
events that have detrimental impact on estimated future cash flows
of the financial asset have occurred.
The evidence that a financial asset is credit-impaired includes
observable data about any of the following events.
•
Significant financial difficulty of the debtor or issuer;
•
A breach of contract such as default;
•
Restructuring of a debt, loan or advance by the Group on
terms that the Group would not consider otherwise;
•
It is probable that the debtor will enter bankruptcy or other
financial reorganisation; or
•
The disappearance of an active market for a security because
of financial difficulties.
Measurement and recognition of expected credit
losses
Expected credit losses are a probability-weighted estimate of credit
losses. Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due to the
Group in accordance with the contract and the cash flows that the
Group expects to receive) – calculated either on the 12-month or
lifetime expected credit losses as applicable – see above. Expected
credit losses are discounted at the effective interest rate of the
financial asset.
For lease receivables, the cash flows used for determining the
expected credit losses is consistent with the cash flows used in
measuring the lease receivable in accordance with IFRS 16 Leases.
(Refer note 36 for further details on the calculation of ECLs).
Presentation of allowance for expected credit
losses
The Group recognises an impairment gain or loss in profit or loss
with a corresponding adjustment to the carrying amount of the
financial asset through a loss allowance account, except for
investments in debt instruments that are measured at FVTOCI, for
which the loss allowance is recognised in other comprehensive
income and accumulated in the investment valuation reserve, and
does not reduce the carrying amount of the financial asset in the
statement of financial position.
Derecognition
Financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire, or it
transfers the rights to receive the contractual cash flows in a
transaction in which: (a) substantially all the risks and rewards of
ownership of the financial asset are transferred, or (b) the Group
neither transfers nor retains substantially all the risks and rewards
of ownership and it does not retain control of the financial asset.
Transfers of financial assets such as trade receivables under debt
discounting arrangements that do not transfer substantially all the
risks and rewards from the Group of the transferred assets are not
de-recognised.
Write-off
The gross carrying amount of a financial asset is written-off or de-
recognised (either partially or in full) when all attempts to recover
the outstanding amount have failed or there is no realistic
prospect of recovery; e.g. when the counterparty has been placed
under liquidation or has entered into bankruptcy proceedings. The
amount written-off is recognised as a reduction to the allowance
for ECLs.
Financial assets written off may still be subject to enforcement
activities under the Group’s recovery procedures, taking into
account legal advice where appropriate. Any recoveries made
are recognised in profit or loss, as a reduction to the impairment
loss for the period.
Financial liabilities
The Group derecognises a financial liability when its contractual
obligations are discharged or cancelled or expire. The Group also
derecognises a financial liability when the terms are modified and
the cash flows of the modified liability are substantially different, in
which case a new financial liability on the modified terms is
recognised at fair value.
On derecognition of a financial liability, the difference between the
carrying amount extinguished and the consideration paid (including
any non-cash assets transferred or liabilities assumed) is recognised
in profit or loss as finance charges.
Derivative financial instruments and hedge
accounting
Derivative financial instruments
The Group holds derivative financial instruments to hedge foreign
currency risk, interest rate risk, commodity risk and other market
exposures.
Embedded derivatives in non-derivative host contracts that are not
financial assets (e.g. financial liabilities) are accounted for
separately when (i) they meet the definition of a derivative, (ii) their
risks and characteristics are not closely related to those of the host
contracts, and (iii) the host contracts are not measured at FVTPL.
Derivatives embedded in hybrid contracts that are or contain
financial assets are not separated. Instead, the entire hybrid
contract is classified and subsequently measured as either
amortised cost or FVTPL as appropriate based on the Group’s
policy on classification of financial assets above.
Derivatives are initially measured at fair value. Subsequent to initial
recognition, derivatives are measured at fair value, and changes in
fair value are recognised in profit or loss, except where cash flow
hedge accounting is applied.
Hedge accounting
The Group designates certain derivatives as hedging instruments to
hedge: (a) exposure to changes in the fair value of a recognised
asset or liability or an unrecognised firm commitment or a
component of any such item, that is attributable to a particular risk
and could affect profit or loss (fair value hedges), and (b) exposure to
the variability in cash flows that is attributable to a particular risk
associated with all, or a component of, a recognised asset or liability
or a highly probable forecast transaction (such as foreign exchange
rates or interest rates) and could affect profit or loss (cash flow
hedges).
At inception of designated hedging relationships, the Group
documents the economic relationship between the hedged item and
the hedging instrument, including the hedge ratio, along with its risk
management objective and strategy for undertaking the hedge.
Furthermore, at the inception of the hedge and on an ongoing basis,
the Group documents whether the hedging instrument is effective in
offsetting changes in fair values or cash flows of the hedged item
attributable to the hedged risk; i.e. whether the hedging relationships
meet all of the following hedge effectiveness requirements:
•
There is an economic relationship between the hedged item
and the hedging instrument;
•
The effect of credit risk does not dominate the value changes that
result from that economic relationship; and
•
The hedge ratio of the hedging relationship is the same as that
resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that
the Group actually uses to hedge that quantity of hedged item.
If a hedging relationship ceases to meet the hedge effectiveness
requirement relating to the hedge ratio but the risk management
objective for that designated hedge relationship remains the same,
the Group adjusts the hedge ratio of the hedge relationship (i.e.
rebalances the hedge) so that it meets the qualifying criteria again.
The Group designates the full change in the fair value of forward
contracts (i.e. including the forward element), and swap contracts
(i.e. including the foreign currency basis spread) as the hedging
instrument for all of its hedging relationships involving forward and
swap contracts.
Fair value hedges
Changes in the fair value of derivatives that are designated as fair
value hedges are recognised in profit or loss, or comprehensive
income where applicable. Changes in the fair value of the hedged
item that are attributable to the hedged risk adjust the carrying
amount of the hedged item (if applicable) and are recognised in profit
or loss.
When the hedged item in a fair value hedge is a firm commitment (or
component thereof) to acquire an asset or assume a liability, the
initial carrying amount of the asset or liability that results from the
firm commitment is adjusted to include the cumulative change in the
fair value of the hedged item that was recognised in the statement of
financial position.
3839
Annual financial statements
Accounting policies
Accounting policies
Any adjustment to the carrying amount of a financial instrument
measured at amortised cost (or a component thereof) arising from
fair value hedge accounting as described above is amortised to
profit or loss, based on a recalculated effective interest rate at the
date that amortisation begins.
Cash flow hedges
The effective portion of changes in the fair value of a derivative that
is designated as a cash flow hedging instrument is recognised in
OCI and accumulated in the cash flow hedging reserve. The
effective portion of change in the fair value of the derivative that is
recognised in OCI is limited to the cumulative change in fair value of
the hedged item from inception of the hedge. Any ineffective portion
of change in the fair value of the derivative is recognised
immediately in profit or loss.
When the hedged forecast transaction subsequently results in the
recognition of a non-financial item such as property, plant and
equipment or inventory, the amount accumulated in the cash flow
hedging reserve is included directly in the initial cost of the non-
financial item when it is recognised. This is not a reclassification
adjustment per IAS 1, and hence it does not affect comprehensive
income.
For all other hedged forecast transactions, the amount accumulated
in the cash flow hedging reserve is reclassified to profit or loss in the
same period or periods during which the hedged expected future
cash flows affect profit or loss.
Discontinuation of hedge accounting
If the hedge no longer meets the qualifying criteria for hedge
accounting or the hedging instrument is sold, expires, is terminated
or is exercised, then hedge accounting is discontinued prospectively.
When hedge accounting for cash flow hedges is discontinued, the
amount that was previously accumulated in the cash flow hedging
reserve remains in equity until, (a) for a hedge of a transaction
resulting in recognition of a non-financial item, it is included in the
non-financial item’s cost on its original recognition, or (b) for other
cash flow hedges, it is reclassified to profit or loss in the same period
or periods in which the hedged expected future cash flows affect
profit or loss.
If the hedged future cash flows are no longer expected to occur,
then the amounts that were previously accumulated in the cash flow
hedging reserve are immediately reclassified to profit or loss.
Offsetting
Assets and liabilities are offset and the net amount is presented in
the statement of financial position when, and only when, the Group
currently has a legally enforceable right to set-off the amounts and
it intends either to settle on a net basis or to realise the asset and
settle the liability simultaneously.
Income and expenses are not offset in profit or loss, except where
offsetting reflects the substance of the underlying transaction.
Share capital
Issued share capital is stated at the amount of the proceeds
received less directly attributable costs of issue.
for the year ended 31 March 2022
Inventories
Inventories are stated at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary
course of business less estimated costs of completion and selling.
Cost is determined as follows:
•
Raw materials and consumable stores are stated at weighted
average cost; and
•
Manufactured goods and work-in-progress are stated at the
weighted average cost of raw material, direct labour and an
allocated portion of overheads.
A provision for obsolescence is raised to write down inventory to its
net realisable value based on a physical count and inspection of
inventory items which is performed at least annually and takes into
account the age, condition and usage rates of the inventory.
The cost of inventories used during the period and changes in
the provision for obsolescence are recognised in profit or loss.
Non-current assets held-for-sale
Non-current assets are classified as held-for-sale if their carrying
amount will be recovered principally through a sale transaction
rather than continuing use. This condition is met when the sale is
highly probable and the asset is available for immediate sale in its
present condition.
Immediately before classification as held-for-sale, the measurement
of the assets is brought up to date in accordance with applicable
IFRS. On initial classification as held-for-sale, non-current assets
are recognised at the lower of their carrying amount and fair value
less costs to sell.
Impairment losses on initial or subsequent write-down to fair value
less costs to sell and gains on subsequent re-measurement are
recognised in profit or loss. A gain on subsequent increase in fair
value less costs to sell may not exceed the cumulative impairment
losses previously recognised on the asset. Assets which are
measured at fair value such as Investment property and financial
assets continue to be accounted for at fair value while classified as
non-current assets held-for-sale with gains and losses recognised in
accordance with IAS 40 Investment Property and IFRS 9 Financial
Instruments.
Non-current assets classified as held-for-sale are not depreciated
or amortised while classified as such.
Where assets classified as held-for-sale are not disposed of within
the one-year requirement of the standard, and management believes
that the delay was caused by events or circumstances beyond the
Group’s control and there is sufficient evidence that the Group
remains committed to its plan to sell the assets, such assets will
continue to be classified as held-for-sale.
Employee benefits
The Group operates several defined benefit funds and a defined
contribution fund. The assets of each fund are held separately from
those of the Group and are administered by the fund’s trustees. The
defined benefit funds are actuarially valued for accounting purposes by
professional independent consulting actuaries on an annual basis.
Defined contribution plans
The Transnet Retirement Fund is a defined contribution plan and
all employees of the Group are eligible members of the fund. The
Group’s contributions to the defined contribution plan are
recognised in profit or loss in the period to which they relate.
Defined benefit plans
The Group has five (5) post-retirement defined benefit plans; namely
the Transport Pension Fund: Transnet Sub-fund, the Transnet
Second Defined Benefit Fund, the Top Management Pensions plan,
the Workmen’s Compensation Act Pensioners’ plan, and the Post-
retirement Medical Benefits plan. The benefit costs and obligations
under the defined benefit plans are determined separately for each
plan using the projected unit credit method.
The service cost and interest on the net defined benefit liability or
asset are recognised in profit or loss. Where the benefits of a plan
are amended or curtailed, the change in the present value of the net
defined benefit obligation relating to past service by the employees
is recognised in profit or loss in the period of the amendment.
Re-measurements of the defined benefit liability or plan assets,
comprising actuarial gains and losses, the effect of changes in the
asset ceiling, where applicable, and the return on the plan assets,
other than interest, are recognised in other comprehensive income
in the period in which they arise.
The post-retirement benefit obligation recognised in the statement
of financial position represents the present value of the defined
benefit obligation less the fair value of any plan assets. A net asset
resulting from this calculation is recognised only to the extent of any
economic benefits available to the Group in the form of refunds or
reductions in the future contributions.
Further details on the Group’s post-retirement benefit obligations
are provided in note 32 of the annual financial statements.
Short-term and long-term benefits
The cost of all short-term employee benefits, such as salaries,
accumulated leave, bonuses, housing allowances, medical and
other contributions, is recognised in profit or loss in the period in
which the employee renders the related service.
The Group’s obligation in respect of long-term service benefits,
other than pension plans and post-retirement medical benefits, is
recognised in profit or loss in the period in which the employee
renders the related service. The obligation is measured taking into
account the probability that payment will be required and the time
value of money.
Termination benefits
Termination benefits are payable when an employee’s employment
is terminated before the normal retirement date or when an
employee accepts voluntary redundancy in exchange for these
benefits. The Group recognises termination benefits when it has
demonstrated its commitment to either terminate the employment of
current employees according to a detailed formal plan without
possibility of withdrawal or to provide termination benefits as a result
of an offer made to encourage voluntary redundancy.
Leases
Group as a lessee
At inception of a new contract, the Group assesses whether the
contract is, or contains, a lease. A contract is, or contains, a lease if
the contract conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. In assessing
whether a contract conveys the right to control the use of an
identified asset, the Group considers whether:
•
The contract involves the use of an asset – explicitly or implicitly
identified in the contract – which is physically distinct or
represents substantially all the capacity of the asset. If the
supplier has a substantive substitution right, then the asset is not
identified;
•
The Group has the right to obtain substantially all the economic
benefits from the use of the asset throughout the period of use;
and
•
The Group has the right to direct the use of the asset; i.e. the
Group has the right to direct how and for what purpose the asset
is used, or in rare cases where the decision about how and for
what purpose the asset is used is predetermined, the Group has
either:
– The right to operate the asset throughout the period of use; or
– The Group designed the asset in such a way that it
predetermines how and for what purpose the asset is used.
At inception or on reassessment of a modified contract that contains
a lease component, the Group allocates the consideration in the
contract to each lease component on the basis of their relative
stand-alone prices, and the aggregate stand-alone price of the non-
lease components. Non-lease components are recognised as an
expense in profit or loss in the period in which they arise, except for
leases of motor vehicles in which the Group is the lessee, where the
Group has applied the practical expedient in IFRS 16 not to separate
the non-lease components and accounts for the lease and non-lease
components as a single lease component.
The Group recognises a right-of-use asset and a lease liability at the
lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease
liability, adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an
estimate of costs to dismantle and remove the underlying asset or to
restore the site on which it is located, less any lease incentives
received. Right-of-use assets are included in property, plant and
equipment in the same class of assets as similar owned assets.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life of the right-or-use asset or the end of the
lease term. The estimated useful lives of the right-of-use assets are
determined on the same basis as those of property, plant and
equipment owned by the Group, if it is expected that ownership of
the asset will transfer to the Group at the end of the lease. The right-
of-use asset is also adjusted for impairment losses, if any, and for
certain re-measurements of the lease liability.
The lease liability is initially measured at the present value of the
lease payments that are not paid at the commencement date,
discounted using the implicit rate in the lease, or if that rate cannot
be readily determined, the Group’s incremental borrowing rate. The
incremental borrowing rate is the rate of interest that the Group
would pay to borrow over a similar term, with a similar security, the
funds necessary to obtain an asset of similar value to the right-of-
use asset in a similar economic environment.
4041
Annual financial statements
Accounting policies
Accounting policies
Lease payments included in the measurement of the lease liability
comprise the following:
•
Fixed payments, including in-substance fixed payments;
•
Variable lease payments that depend on an index or a rate, initially
measured using the index or rate as at the commencement date;
•
Amounts expected to be paid under a residual value
guarantee; and
•
The exercise price under a purchase option that the Group is
reasonably certain to exercise, lease payments during an optional
extension period if the Group is reasonably certain to exercise the
extension option, and penalties for early termination of a lease
unless the Group is reasonably certain not to terminate early.
The lease liability is subsequently measured at amortised cost using
the effective interest rate method.
Remeasurement of lease liability
The lease liability is remeasured by discounting the remaining
lease payments using a revised discount rate if:
•
There is a change in the lease term; or
•
If the Group changes its assessment of whether it will exercise an
option to purchase the underlying asset.
The lease liability is remeasured by discounting the remaining lease
payments using the original discount rate if there is a change in:
•
The Group’s estimate of the amount expected to be payable
under a residual value guarantee; or
•
If there is a change in future lease payments resulting from a
change in an index or a rate used to determine those
payments, unless the change in lease payments results from a
change in floating rates, in which case the Group uses a
revised discount rate that reflects changes in the interest rate.
When the lease liability is remeasured, a corresponding adjustment
is made to the carrying amount of the right-of-use asset, or is
recognised in profit or loss if the carrying amount of the right-of-use
asset has been reduced to zero.
Lease modifications
Modifications to the lease are accounted for as a separate lease if
they:
•
Increase the scope of the lease by adding the right to use one
or more underlying assets; and
•
The consideration for the lease increases by an amount
commensurate with the standalone price for the increase in scope
and any appropriate adjustments to that standalone price to
reflect the circumstances of the particular contract.
Short-term leases and leases of low-value assets
The Group does not recognise right-of-use assets and lease
liabilities for short-term leases that have a lease term of 12 months
or less at the commencement date, and leases of low-value assets
with a value when new equal to or less than R50,000. The Group
recognises the lease payments associated with these leases as an
expense on a straight-line basis over the lease term.
Variable lease expense
Variable lease expenses, which do not depend on an index or a
rate, are recognised in profit or loss in the period in which the
event giving rise to the expense occurs.
for the year ended 31 March 2022
Derecognition
Any gain or loss arising from the partial or full termination of a
lease (i.e. derecognition of the right-of-use asset and the
corresponding lease liability) is recognised in profit or loss in the
period in which it arises.
Presentation
The Group presents the right-of-use assets that do not meet the
definition of investment property within property, plant and
equipment and the lease liabilities under long-term borrowings and
short-term borrowings in the statement of financial position.
Group as a lessor
At inception of a new contract, the Group assesses whether the
contract is, or contains, a lease using the above criteria. If the
contract is or contains a lease, the Group determines whether each
lease is a finance lease or an operating lease. To classify each
lease, the Group assesses whether the lease transfers substantially
all of the risks and rewards incidental to ownership of the underlying
assets. If this is the case, the lease is classified as a finance lease,
otherwise it is classified as an operating lease.
If the arrangement contains lease and non-lease components, the
Group allocates the consideration in the contract to each component
on the basis of their relative standalone prices.
Finance leases
For assets leased out under a finance lease, the Group
derecognises the leased asset and recognises the net investment in
the lease as a receivable. The difference between the gross
receivable and the present value of the receivable is recognised as
unearned finance income. Lease income is recognised over the
term of the lease using the net investment method, which reflects a
constant periodic rate of return.
Operating leases
Assets leased to third parties under operating leases are included in
property, plant and equipment or investment property. Lease
income, net of any incentives given to the lessee, is recognised in
profit or loss on a straight-line basis over the lease term.
Provisions and contingencies
Provisions are recognised when the Group has a present legal or
constructive obligation, as a result of a past event, and it is probable
that the Group will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.
The provision is recognised at the best estimate of the
consideration required to settle the obligation at the end of the
reporting period, taking into account the risks and uncertainties
surrounding the obligation. Where the effect of time value
of money is material, the provision is determined by discounting the
expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and the risks
specific to the liability. The unwinding of the discount in subsequent
financial periods is recognised as an expense in profit or loss under
finance costs.
When some or all of the economic benefits required to settle a
provision are expected to be recovered from a third party, a
receivable is recognised as an asset when it is virtually certain that
the reimbursement will be received and the amount of the
receivable can be measured reliably.
Decommissioning liabilities
The Group recognises a provision for the dismantling and removal
of an item of property, plant and equipment and restoring the site
when the Group has a present obligation, legal or constructive, to
decommission the asset and restore the site on which the asset is
located and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the
cost to dismantle and remove the item and rehabilitate the site and
may change from year to year taking into account the changes in
intended use of the asset, new techniques and know-how in
rehabilitating affected sites, estimated risks and uncertainties
surrounding the obligation and the time value of money. These
estimates are reviewed at least annually.
The initial estimate of costs to decommission an asset, the
obligation for which arises as a result of either having acquired or
constructed the asset or as a consequence of having used the asset
in the current and/or prior periods for purposes other than to
produce inventories, is capitalised as part of the cost of the asset.
Where the obligation arises as a result of having used the asset to
produce inventories, the decommissioning costs are recognised as
part of the cost of the inventory.
The effect of subsequent changes to assumptions in estimating an
obligation for which the provision was recognised as part of the cost
of the asset is adjusted against the cost of the asset unless the
asset is carried under the revaluation model.
For assets carried under the revaluation model, changes in
the provision are accounted for as follows:
•
A decrease in the decommissioning liability is recognised in other
comprehensive income and increases the revaluation surplus
within equity, except that it is recognised in profit or loss to the
extent that it reverses a revaluation deficit on the asset that was
previously recognised in profit or loss.
•
An increase in the decommissioning liability is recognised in profit
or loss, except that it is recognised in other comprehensive income
and reduces the revaluation surplus within equity to the extent of
any credit balance existing in the revaluation surplus in respect of
that asset.
Environmental liabilities
The Group recognises a provision for environmental rehabilitation
costs in accordance with its environmental policy and applicable
legislation when the Group has a present obligation, legal or
constructive, as a result of a past event and a reliable estimate can
be made of the amount of the obligation.
The Group’s environmental obligations arise from legislation which
requires the Group to rehabilitate quarries, remove waste material
and remediate land contaminated by asbestos, ferromanganese,
manganese, mixed soil (including chrome, sulphur and
manganese), fuel, rubble and ballast.
A number of factors are considered in estimating the amount of the
obligation, including:
•
The nature and extent of the contamination;
•
The appropriate method to remediate the contamination;
•
The cost per ton/square metre/kilometre of removal and disposal
of the contamination, including transportation costs where
applicable;
•
The cost of rehabilitation of the identified areas of
contamination; and
•
The costs for the removal and replacement of asbestos roof
sheeting and cladding on buildings.
The provision is initially recognised as an expense in profit or loss
and is reviewed at least annually. Subsequent changes to the
provision are recognised prospectively in profit or loss as a change
in accounting estimate.
More details on the Group’s provisions are provided in note 25 of
the annual financial statements.
Onerous contracts
A provision for onerous contracts is recognised when the
unavoidable costs of meeting the Group’s obligations under a
contract exceed the economic benefits expected to be received
under the contract.
The provision is measured at the present value of the lower of the
expected cost of exiting the contract and the expected net cost of
continuing with the contract, which is determined based on costs
that relate directly to fulfilling the Group’s obligation under the
contract.
Costs that relate directly to a contract consist of both the
incremental costs of fulfilling that contract (e.g. direct labour or
materials) and an allocation of other costs that relate directly to
fulfilling the contract (e.g. an allocation of the depreciation charge
for an item of property, plant and equipment used in fulfilling the
contract).
Before a provision is established, the Group recognises any
impairment loss on the assets associated with that contract.
Contingent liabilities
Contingent liabilities are not recognised in the financial statements
but are disclosed in the notes to the financial statements unless the
probability of occurrence is remote.
Contingent assets
Contingent assets are not recognised in the financial statements
and are only disclosed in the notes to the financial statements
where an inflow of economic benefits is probable.
Financial guarantee contracts
The Group recognises financial guarantee contracts initially at fair
value. Subsequently they are measured at the higher of:
•
The amount of loss allowance determined in accordance
with IFRS 9 Financial Instruments, and
•
The amount initially recognised less, where appropriate, the
cumulative amount of income recognised in accordance with the
principles of IFRS 15 Revenue from Contracts with Customers.
Legal claims
Legal claims comprise third party and customer claims. A provision
for legal claims is recognised when the Group has a present
obligation as a result of a past event, it is probable that the Group
will be required to settle the obligation, and a reliable estimate can
be made of the amount of the obligation taking into account legal
opinion and the risk and uncertainties surrounding the claim.
4243
Annual financial statements
Accounting policies
Accounting policies
Compensation receivable
Compensation receivable from third parties such as insurance
companies in respect of assets that are impaired or lost or for any
other loss incurred is recognised in the profit or loss when it is
virtually certain that the payment will be received and the amount
can be measured reliably.
The compensation receivable is treated as a separate transaction
and is not off-set against the original loss recognised in profit or
loss.
Segment information disclosure
For management purposes, the Group is organised into five
Operating divisions, based on products and services, which
represent the main segments for reporting segment information in
accordance with IFRS 8 Operating Segments. The operating
segments are identified based on internal reports that the Group
executive team reviews regularly in allocating resources to
segments and in assessing their performance. All the Group’s
major operations are located in the Republic of South Africa.
Transfer prices for services between operating segments are on an
arm’s-length basis, similar to transactions with third parties. Inter-
segment revenues are eliminated upon consolidation and reflected
in the ‘elimination of inter-segment transactions’ column of the
segment report.
Related parties
A related party is a person or an entity with the ability to control or
jointly control the other party or exercise significant influence over
the other party, or vice versa, or an entity that is subject to common
control, or joint control.
for the year ended 31 March 2022
Transnet is a Schedule 2 Public Entity in terms of the Public Finance
Management Act (PFMA). As a state-owned entity, Transnet is
controlled by the national government of South Africa. In the South
African context, the government is divided into three spheres,
namely the national, provincial and local spheres of government.
The autonomy of the different spheres is guaranteed in terms of the
Constitution of South Africa. Transnet is part of the national sphere.
In accordance with IAS 24 Related Parties, and guidance issued by
the Department of National Treasury, all departments and public
entities in the national sphere of government are related parties.
This includes state departments, other state owned enterprises and
public entities that are subject to control, joint control or significant
influence of the national government. Entities in other spheres of
government are not related parties of Transnet.
The full list of related parties is available on the National Treasury
website (www.treasury.gov.za) and at the registered offices of the
Company.
In addition, the Company has related-party relationships with its
subsidiaries, associates and joint ventures (refer note 37), and with
its key management personnel; i.e. directors and senior executives
(refer note 38).
Services rendered to related parties comprise principally
transportation services. Services purchased from related parties
comprised principally energy, telecommunications, information
technology and property-related services. Unless otherwise
disclosed, all transactions with related parties are concluded on an
arm’s-length basis.
Detailed disclosure on related party transactions and balances is
included in note 33.
Financial reporting standards and interpretations issued but not yet effective
The following new or revised International Financial Reporting Standards, amendments and interpretations, which are applicable to the Group
were not yet effective for the year ended 31 March 2022 and were not applied in preparing these financial statements. Transnet will not be
early adopting any of the standards below.
Presentation of financial statements
Classification of liabilities
No earlier than
Narrow-scope amendments to IAS 1 to clarify how to classify debt and other liabilities as
1 January 2024.
current or non-current. The amendments clarify:
• What is meant by a right to defer settlement,
• That a right to defer must exist at the end of the reporting period,
• That classification is unaffected by the likelihood that an entity will exercise its deferral
right, and
• That only if an embedded derivative in a convertible liability is itself an equity instrument,
would the terms of a liability not impact its classification.
Disclosure of accounting policies
Annual periods
The amendments require companies to disclose their material accounting policy information
beginning on or after
rather than their significant accounting policies, with additional guidance added to the
1 January 2023.
Standard to explain how an entity can identify material accounting policy information with
examples of when accounting policy information is likely to be material.
The revised standard will be applied prospectively and will not have a material impact on the
Group’s financial statements.
Accounting policies, changes in accounting estimates and errors
Definition of accounting estimates
The amendments clarify how companies should distinguish changes in accounting policies
from changes in accounting estimates, by replacing the definition of a change in accounting
Annual periods
estimates.
beginning on or after
Under the new definition, accounting estimates are “monetary amounts in financial
1 January 2023.
statements that are subject to measurement uncertainty”. The requirements for recognising
the effect of a change in accounting estimates prospectively remain unchanged.
The revised standards will not have a material impact on the Group’s financial statements.
Income tax
Deferred tax related to assets and liabilities arising from a single transaction
The amendment clarifies how companies should account for deferred tax on transactions
such as leases and decommissioning obligations. The amendments narrowed the scope of the
Annual periods
recognition exemption in paragraphs 15 and 24 of IAS 12 (recognition exemption) so that it
beginning on or after
no longer applies to transactions that, on initial recognition, give rise to equal taxable and
1 January 2023.
deductible temporary differences.
The revised standard will be applied prospectively and will not have a material impact on the
Group’s financial statements.
Property, plant and equipment
Proceeds before intended use
The amendments prohibit an entity from deducting from the cost of an item of property,
plant and equipment any proceeds from selling items produced while bringing that asset to
Annual periods
the location and condition necessary for it to be capable of operating in the manner intended
beginning on or after
by management. Instead, an entity recognises the proceeds from selling such items, and the
1 January 2022.
cost of producing those items, in profit
or loss.
The revised standard will be applied prospectively and will not have a material impact on the
Group’s financial statements.
4445
Annual financial statements
Accounting policies
Accounting policiesfor the year ended 31 March 2022
Investments in associates and joint ventures
The effective date of
Sale or contribution of assets between an investor and its associate or joint venture
this amendment has
(amendments to IFRS 10 and IAS 28)
been deferred
Narrow scope amendment to address an acknowledged inconsistency between the
indefinitely until
requirements in IFRS 10 and those in IAS 28 (2011), in dealing with the sale or contribution
further notice.
of assets between an investor and its associate or joint venture.
Provisions, contingent liabilities and contingent assets
Onerous contracts – cost of fulfilling a contract
The amendments specify which costs should be included in an entity’s assessment whether a
contract will be loss-making. The amendments clarify that for the purpose of assessing
Annual periods
whether a contract is onerous, the cost of fulfilling the contract includes both the
beginning on or after
incremental costs of fulfilling that contract and an allocation of other costs that relate
1 January 2022.
directly to fulfilling contracts.
The revised standard will be applied prospectively and will not have a material impact on the
Group’s financial statements.
Business combinations
Reference to the conceptual framework
The amendment updates a reference in IFRS 3 to the conceptual framework for financial
reporting without changing the accounting requirements for business combinations.
Specific requirements for transactions and events within the scope of IAS 37 or IFRIC 21
The acquirer shall apply IAS 37 to determine whether at the acquisition date a present
Annual periods
obligation exists as a result of past events for a provision or contingent liability that would
beginning on or after
be within the scope of IAS 37.
1 January 2022.
For a levy that would be within the scope of IFRIC 21, the acquirer shall apply IFRIC 21 to
determine whether the obligating event that gives rise to a liability to pay the levy has
occurred by the acquisition date. The acquirer shall not recognise a contingent asset at the
acquisition date.
The amendments will be applied prospectively and will not have a material impact on the
Group’s financial statements.
Financial Instruments
Annual improvements to IFRS 2018 – 2020
The amendment clarifies which fees an entity includes when it applies the ’10 per cent’ test in
Annual periods
assessing whether to derecognise a financial liability. An entity includes only fees paid or
beginning on or after
received between the entity (the borrower) and the lender, including fees paid or received by
1 January 2022.
either the entity or the lender on the other’s behalf.
The amendment will be applied prospectively and will not have a material impact on the
Group’s financial statements.
Consolidated financial statements; and investments in associates and joint ventures
Sale or contribution of assets between an investor and its associate or joint venture
Narrow scope amendment to address an acknowledged inconsistency between the
Effective date to be
requirements in IFRS 10 and those in IAS 28 (2011), in dealing with the sale or contribution
determined.
of assets between an investor and its associate or joint venture.
The revised standard will be applied prospectively and will not have a material impact on the
Group’s financial statements.
Leases
Annual improvements to IFRS 2018-2020 cycle
Illustrative examples to IFRS 16 Leases incentives
The amendment removed the illustration of the reimbursement of leasehold improvements.
No effective date.
In the illustrative example, the conclusion as to whether the reimbursement would meet the
definition of a lease incentive in IFRS 16 was not clear enough.
The amendment to IFRS 16 only regards an illustrative example (non-obligatory part of
IFRS).
The financial reporting standards, amendments or interpretations listed below are currently not applicable to the Group and will have no impact
on the Group’s financial statements:
First-time adoption of International Financial Reporting Standards
Annual improvements to IFRS 2018 – 2020
Annual periods
The amendment provides an extension of an optional exemption permitting a subsidiary that
beginning on or after
becomes a first-time adopter after its parent to measure cumulative translation differences
1 January 2022.
using the amounts reported by its parent, based on the parent’s date of transition to IFRSs. A
similar election is available to an associate or joint venture.
Insurance contracts
IFRS 9 temporary exemption
The amendment to IFRS 4 enables an insurer applying the temporary exemption from IFRS 9 to
Annual periods
apply a practical expedient to account for a change in the contractual cash flows that are
beginning on or after
required by IBOR reform by updating the effective interest rate to reflect any change arising
1 January 2023.
from the reform.
The effective date to this amendment was extended by two years to periods beginning on or
after 1 January 2023.
Insurance contracts
IFRS 17 creates a single accounting model for all insurance contracts under IFRS.
The standard requires an entity to:
• Measure insurance contracts using updated estimates and assumptions that reflect the
Annual periods
timing of cash flows and take into account any uncertainty relating to insurance contracts;
beginning on or after
• Reflect the time value of money in estimated payments required to settle incurred claims;
1 January 2023.
• Measure insurance contracts based only on the obligations created by the contracts; and
• Recognise profits as an insurance service is delivered, rather than on receipt of premiums.
This standard replaces IFRS 4 Insurance Contracts.
Agriculture
Annual periods
Annual improvements to IFRS 2018 – 2020
beginning on or after
The amendment removes the requirement for entities to exclude taxation cash flows when
1 January 2022.
measuring the fair value of a biological asset using a present value technique.
4647
Annual financial statements
Consolidated financial statements
for the year ended 31 March 2022
Revenue
1
Net operating expenses excluding depreciation, derecognition
(47 813 )
(45 010 )
and amortisation
2
(45 010 )
(47 813 )
Profit from operations before depreciation, derecognition,
amortisation and items listed below
(13 872 )
(14 847 )
Depreciation, derecognition and amortisation
3
(14 847 )
(13 872 )
Profit from operations before the items listed below
4.1
(987 )
(415 )
Impairment of financial assets
4.2.1
(415 )
(987 )
(3 399 )
(2 119 )
Impairment of non-financial assets
4.2.2
(2 119 )
(3 399 )
Dividends received
4.3
(202 )
(190 )
Post-retirement benefit obligation expense
4.4
(190 )
(202 )
(1 221 )
Fair value adjustments
5
(1 243 )
(Loss)/income from associates and joint ventures
13
(6 )
(221 )
Profit/(loss) from operations before net finance costs
(230 )
(11 296 )
(10 684 )
Finance costs
6
(10 684 )
(11 296 )
Finance income
7
(11 279 )
Profit/(loss) before taxation
(11 270 )
(435 )
Taxation
8
(441 )
(8 723 )
Profit/(loss) for the year
(8 734 )
for the year ended 31 March 2022
(8 723 )
Profit/(loss) for the year
(8 734 )
Other comprehensive income
Net items that will not be reclassified subsequently
to profit or loss
Items that will not be reclassified subsequently to profit or loss
– Profit on revaluation
(50 )
– Actuarial gain/(loss) on post-retirement benefit obligations
(50 )
Tax relating to components that will not be reclassified
(2 427 )
(2 799 )
subsequently to profit or loss*
8.1
(2 799 )
(2 427 )
(79 )
(9 )
Net items that may be reclassified subsequently to profit or loss
(7 )
(59 )
(108 )
(2 )
Items that may be reclassified subsequently to profit or loss
(74 )
(97 )
(5 )
– Loss on cash flow hedges
(5 )
(97 )
(11 )
– Gain on revaluation
Tax relating to components that may be reclassified subsequently
(7 )
to profit or loss*
8.1
(10 )
Other comprehensive income for the year, net of tax
(2 661 )
Total comprehensive income/(loss) for the year
(2 652 )
* Includes the impact of the corporate tax rate change, from 28% to 27%, on the related opening tax balances recorded in equity.
4849
Annual financial statements
Consolidated financial statements
Disclosure of components of other comprehensive income
for the year ended 31 March 2022
Items that will not be reclassified subsequently to profit
or loss
6 177
10 816
Net gain on revaluation reserve
10 816
6 177
8 618
13 632
Profit on revaluation
13 632
8 618
(257)
905
– Gain/(loss) on revaluation of pipeline networks
22
905
(257)
10 472
4 092
– Gain on revaluation of port facilities
22
4 092
10 472
(1 318)
6 643
– Gain/(loss) on revaluation of rail infrastructure
22
6 643
(1 318)
(294)
(8)
– Decommissioning and restoration liability adjustment
22
(8)
(294)
15
2 000
– Net gain on revaluation of land, buildings and structures
22
2 000
15
(2 441)
(2 816)
Tax effect of revalued items*
8.1
(2 816)
(2 441)
Net actuarial gain/(loss) on post-retirement benefit
(36)
(36)
100
obligations
100
(50)
83
Actuarial gain/(loss) on post-retirement benefit obligations
22
83
(50)
– Actuarial gain on the Transport Pension Fund:
14
8
Transnet Sub-fund
32.1.2
8
14
(7)
(3)
– Actuarial loss on the Transnet Top Management Pension
32.1.4
(3)
(7)
– Actuarial gain/(loss) on the Transnet Workmen's
(13)
15
Compensation Act Pensioners
32.1.5
15
(13)
– Actuarial gain/(loss) on the Transnet SATS Pensioners
(14)
8
medical benefits
32.2.1
8
(14)
– Actuarial gain/(loss) on the Transnet employees medical
(30)
55
benefits
32.2.2
55
(30)
14
17
Taxation effect of net actuarial (gain)*/loss
8.1
17
14
Items that may be reclassified subsequently to profit or loss
(9)
3
Net income/(loss) on revaluation reserve
5
11
(11)
3
8
23
—
—
– Gain on revaluation of debt investment
22
5
34
(11)
3
– Gain/(loss) on revaluation of other investments
22
3
(11)
2
—
– Taxation effect of revalued items*
8.1
(3)
(12)
(70)
(12)
Net loss on cash flow hedging reserve
(12)
(70)
(97)
(5)
– Loss on cash flow hedges
22
(5)
(97)
27
(7)
– Tax effect of cash flow hedge loss*
8.1
(7)
27
6 062
10 907
Other comprehensive income for the year
10 909
6 082
* Includes the impact of the corporate tax rate change, from 28% to 27%, on the related opening tax balances recorded in equity.
as at 31 March 2022
Company
Non-current assets
Property, plant and equipment
9
Investment property
10
Intangible assets
11
Investments in subsidiaries
12
—
—
—
Investments in associates and joint ventures
13
Derivative financial assets
14
Long-term loans and advances
15
Other investments and long-term
financial assets
16.1
Current assets
Inventory
17
Trade and other receivables
18
Contract assets
27
Current tax asset
Derivative financial assets
14
Other short-term investments
16.2
Cash and cash equivalents
19
Assets classified as held-for-sale
20
Total assets
Capital and reserves
Issued capital
21
Reserves
22
Attributable to the equity holder
Non-current liabilities
Employee benefits
23
Long-term borrowings
24
Derivative financial liabilities
14
Long-term provisions
25
Deferred tax liability
26
Other non-current liabilities
16.3
Current liabilities
Contract liabilities
27
Trade payables and accruals
28
Short-term borrowings
29
Current tax liability
Derivative financial liabilities
14
Short-term provisions
25
Total equity and liabilities
5051
Annual financial statements
Consolidated financial statements
for the year ended 31 March 2022
Restated opening balances as at 1 April 2020
(501 )
Opening balances as at 1 April 2020 as previously reported
(501 )
CWIP impairment error correction
(528 )
(528 )
Investment property fair value error correction
(net of tax)
(659 )
(626 )
Restated loss for the year
(8 723 )
(8 723 )
Loss for the year as previously reported
(8 375 )
(8 375 )
CWIP impairment error correction
(25 )
(25 )
Investment property fair value error correction
(net of tax)
(323 )
(323 )
Other comprehensive income/(loss) for the year (net of tax)
(36 )
(70 )
Transfer to retained earnings
(32 )
Restated balances at 31 March 2021
12 661
(571 )
Profit for the year
Other comprehensive income/(loss) for the year (net of tax)
(12 )
Transfer to retained earnings
(185 )
Balances at 31 March 2022
(583 )
Restated opening balances as at 1 April 2020
(501 )
Opening balances as at 1 April 2020 as previously reported
(501 )
CWIP impairment error correction
(528 )
(528 )
Investment property fair value error correction
(net of tax)
(659 )
(626 )
Restated loss for the year
(8 734 )
(8 734 )
Loss for the year as previously reported
(8 386 )
(8 386 )
CWIP impairment error correction
(25 )
(25 )
Investment property fair value error correction
(net of tax)
(323 )
(323 )
Other comprehensive income/(loss) for the year (net of tax)
(36 )
(70 )
Transfer to retained earnings
(32 )
Restated balances at 31 March 2021
(571 )
Profit for the year
Other comprehensive income/(loss) for the year (net of tax)
(12 )
Transfer to retained earnings
(185 )
Balances at 31 March 2022
(583 )
*Other reserves relate to the share of pension fund surplus (retained for application against pensioners).
for the year ended 31 March 2022
Cash flows from operating activities
Cash generated from operations
34.1
(2 700 )
Changes in working capital
34.2
(2 701 )
Cash generated from operations after working capital changes
(10 914 )
(9 980 )
Finance costs
34.3
(9 980 )
(10 914 )
Finance income
7
Tax paid
34.4
(13 )
(9 )
(143 )
(120 )
Settlement of post–retirement benefit obligations
(120 )
(143 )
(1 378 )
(1 537 )
Derivatives settled and raised
(1 537 )
(1 378 )
(16 002 )
(13 173 )
Cash flows utilised in investing activities
(13 115 )
(15 626 )
(12 862 )
(10 154 )
Investment to maintain operations
(10 096 )
(12 486 )
(12 890 )
(10 370 )
Replacements to property, plant and equipment
(10 370 )
(12 890 )
(3 )
(2 )
Acquisition of investment property
(2 )
(3 )
(72 )
(5 )
Acquisition of intangible assets
(5 )
(72 )
(90 )
(61 )
Borrowing costs capitalised
(61 )
(90 )
Proceeds on the disposal of property, plant and equipment
Proceeds on the disposal of intangible assets
Dividend income
Net decrease in other investments
Investment to expand operations
(3 140 )
(3 019 )
(3 019 )
(3 140 )
(2 021 )
(1 872 )
Expansions – property, plant and equipment
(1 872 )
(2 021 )
(1 119 )
(1 147 )
Borrowing costs capitalised
(1 147 )
(1 119 )
(1 651 )
Cash flows (utilised in)/from financing activities
(1 651 )
Borrowings raised*
(17 932 )
(20 062 )
Borrowings repaid**
(20 062 )
(17 932 )
(3 484 )
Net increase/(decrease) in cash and cash equivalents
(3 088 )
Cash and cash equivalents at the beginning of the year
Total cash and cash equivalents at the end of the year
19
*
Borrowings raised excludes deferred interest of R479 million (2021: R464 million), refer note 34.3 and fees relating to the raising of borrowings of R35 million
(2021: R35 million).
**
Included in borrowings repaid are repayments in respect of leases of R599 million (2021: R659 million).
5253
Annual financial statements
Consolidated financial statements
Segment information
for the year ended 31 March 2022
Revenue from contracts with customers
36 581
459
8 558
14 535
5 225
65 358
62
—
65 420
Coal
11 744
—
—
—
—
11 744
—
—
11 744
Iron ore and manganese
14 254
—
—
—
—
14 254
—
—
14 254
Mineral mining and chrome
4 824
—
—
—
—
4 824
—
—
4 824
Steel and cement
2 754
—
—
—
—
2 754
—
—
2 754
Agricultural and bulk liquids
1 384
—
—
—
—
1 384
—
—
1 384
Marine services
—
—
2 431
—
—
2 431
—
—
2 431
Containers
1 179
—
3 390
7 306
—
11 875
—
—
11 875
Automotive
191
—
342
979
—
1 512
—
—
1 512
Break-bulk
—
—
154
2 507
—
2 661
—
—
2 661
Bulk
—
—
2 074
3 743
—
5 817
—
—
5 817
Pipelines – oil and gas
—
—
—
—
5 200
5 200
—
—
5 200
Engineering
—
459
—
—
—
459
—
—
459
Other2
251
—
167
—
25
443
62
—
505
Other revenue
512
—
1 730
—
53
2 295
744
—
3 039
Lease income
512
—
1 730
—
—
2 242
744
—
2 986
Government grant
—
—
—
—
53
53
—
—
53
Total external revenue
37 093
459
10 288
14 535
5 278
67 653
806
—
68 459
Internal revenue
719
8 442
2 260
—
5
11 426
212
(11 638)
—
Total revenue
37 812
8 901
12 548
14 535
5 283
79 079
1 018
(11 638)
68 459
Energy costs
(5 876)
(190)
(645)
(855)
(279)
(7 845)
(157)
—
(8 002)
Maintenance costs
(2 692)
(155)
(360)
(445)
(124)
(3 776)
37
1 347
(2 392)
Material costs
(228)
(3 406)
(67)
(608)
(3)
(4 312)
(8)
3 517
(803)
Personnel costs
(13 651)
(5 779)
(2 841)
(5 644)
(498)
(28 413)
(2 068)
4 287
(26 194)
Other costs3
(4 067)
(868)
(1 121)
(2 777)
(660)
(9 493)
(613)
2 487
(7 619)
Earnings before interest, tax, depreciation, derecognition and amortisation (EBITDA)
11 298
(1 497)
7 514
4 206
3 719
25 240
(1 791)
—
23 449
Depreciation and amortisation
(8 821)
(799)
(2 603)
(1 597)
(1 127)
(14 947)
(142)
242
(14 847)
Impairment of assets
(1 796)
24
(281)
(240)
(15)
(2 308)
(226)
—
(2 534)
Dividends received and income from associates
—
—
—
—
—
—
(6)
—
(6)
Fair value adjustments and post-retirement benefit obligation expense
968
1
8 216
(2)
—
9 183
802
—
9 985
Finance costs
(4 562)
(558)
(999)
153
(413)
(6 379)
(13 339)
9 034
(10 684)
Finance income
98
9
220
121
—
448
8 712
(9 034)
126
Profit/(loss) before tax
(2 815)
(2 820)
12 067
2 641
2 164
11 237
(5 990)
242
5 489
Total assets4
174 770
17 939
97 276
24 175
41 551
355 711
16 077
(16 577)
355 211
Total liabilities
124 901
15 444
26 978
5 845
19 778
192 946
30 962
(12 168)
211 740
Capital expenditure5
10 037
99
1 185
1 548
330
13 199
41
—
13 240
Cash generated from operations after working capital changes
14 690
(2 125)
9 399
5 301
3 886
31 151
(2 093)
—
29 058
EBITDA margin (%)
29,9
(16,8)
59,9
28,9
70,4
31,9
n/a
n/a
34,3
Number of permanent employees
23 465
8 442
3 883
7 596
612
43 998
2 088
n/a
46 086
1
Revenue from segments below the quantitative thresholds are attributable to Transnet Property and the corporate centre function. Transnet Property
manages internal and external leases of commercial and residential property and the Transnet corporate centre function performs an administration
function for the Group.
2
Other revenue from contracts with customers relate mainly to lighthouse related tariff income, the use of ship repair facility related income at the ports,
telecommunication services provided on the rail network and passenger rail income.
3
Other costs include the remaining net operating expense line items as disclosed in note 2.
4
Excludes assets held-for-sale.
5
Excludes capitalised borrowing costs; includes capitalised finance leases and capitalised decommissioning liabilities.
5455
Annual financial statements
Consolidated financial statements
Segment information (restated)
for the year ended 31 March 2021
Revenue from contracts with customers
38 300
230
7 999
13 094
4 834
64 457
—
—
64 457
Coal
13 460
—
—
—
—
13 460
—
—
13 460
Iron ore and manganese
12 909
—
—
—
—
12 909
—
—
12 909
Mineral mining and chrome
5 577
—
—
—
—
5 577
—
—
5 577
Steel and cement
2 680
—
—
—
—
2 680
—
—
2 680
Agricultural and bulk liquids
1 675
—
—
—
—
1 675
—
—
1 675
Marine services
—
—
2 218
—
—
2 218
—
—
2 218
Containers
1 388
—
3 168
6 574
—
11 130
—
—
11 130
Automotive
210
—
230
635
—
1 075
—
—
1 075
Break-bulk
—
—
131
2 089
—
2 220
—
—
2 220
Bulk
—
—
1 917
3 791
—
5 708
—
—
5 708
Pipelines – oil and gas
—
—
—
—
4 801
4 801
—
—
4 801
Engineering
—
230
—
—
—
230
—
—
230
Other2
401
—
335
5
33
774
—
—
774
Other revenue
457
—
1 580
—
53
2 090
726
—
2 816
Lease income
457
—
1 580
—
—
2 037
726
—
2 763
Government grant
—
—
—
—
53
53
—
—
53
Total external revenue
38 757
230
9 579
13 094
4 887
66 547
726
—
67 273
Internal revenue
691
7 961
1 979
—
5
10 636
469
(11 105)
—
Total revenue
39 448
8 191
11 558
13 094
4 892
77 183
1 195
(11 105)
67 273
Energy costs
(4 839)
(224)
(549)
(672)
(237)
(6 521)
(139)
—
(6 660)
Maintenance costs
(2 435)
(181)
(294)
(386)
(141)
(3 437)
(71)
1 286
(2 222)
Material costs
(368)
(2 787)
(52)
(531)
(43)
(3 781)
(3)
3 358
(426)
Personnel costs
(13 086)
(5 618)
(2 589)
(5 266)
(468)
(27 027)
(1 277)
4 094
(24 210)
Other costs3
(4 417)
(855)
(1 372)
(2 608)
(6 055)
(15 307)
(1 355)
2 367
(14 295)
Earnings before interest, tax, depreciation, derecognition and amortisation (EBITDA)
14 303
(1 474)
6 702
3 631
(2 052)
21 110
(1 650)
—
19 460
Depreciation and amortisation
(8 021)
(575)
(2 246)
(1 731)
(1 294)
(13 867)
(247)
242
(13 872)
Impairment of assets
(1 899)
(783)
(314)
(774)
(118)
(3 888)
(498)
—
(4 386)
Dividends received and income from associates
—
—
—
—
—
—
13
—
13
Fair value adjustments and post-retirement benefit obligation expense
143
9
(920)
(6)
—
(774)
(671)
—
(1 445)
Finance costs
(4 685)
(614)
(1 158)
137
(527)
(6 847)
(13 480)
9 031
(11 296)
Finance income
67
50
158
79
—
354
8 933
(9 031)
256
(Loss)/profit before tax
(92)
(3 387)
2 222
1 336
(3 991)
(3 912)
(7 600)
242
(11 270)
Total assets4
167 416
16 671
85 181
21 053
41 318
331 639
15 821
(13 686)
333 774
Total liabilities
122 090
11 917
27 626
4 895
21 784
188 312
26 932
(9 015)
206 229
Capital expenditure5
11 926
222
684
2 324
499
15 655
261
—
15 916
Cash generated from operations after working capital changes
13 283
1 302
6 512
3 586
2 992
27 675
(3 068)
n/a
24 607
EBITDA margin (%)
36,3
(18,0)
58,0
27,7
(41,9)
27,4
n/a
n/a
28,9
Number of permanent employees
25 614
9 660
4 239
8 326
679
48 518
1 124
n/a
49 642
1
Included in other segments is revenue from segments below the quantitative thresholds that are attributable to Transnet Property and the corporate centre
function. Transnet Property manages internal and external leases of commercial and residential property and the Transnet corporate centre function
performs an administration function for the Group.
2
Other revenue from contracts with customers relate mainly to lighthouse related tariff income, the use of ship repair facility related income at the ports,
telecommunication services provided on the rail network and rail-related demurrage income.
3
Other costs include the remaining net operating expense line items as disclosed in note 2.
4
Excludes assets held-for-sale.
5
Excludes capitalised borrowing costs; includes capitalised finance leases and capitalised decommissioning liabilities.
5657
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
64 457
65 420
Revenue from contracts with customers
65 420
64 457
Rail freight
38 300
36 581
36 581
38 300
230
459
Engineering
459
230
21 093
23 093
Ports
23 093
21 093
4 834
5 225
Pipelines – petroleum products and gas
5 225
4 834
—
62
Other
62
—
2 816
3 039
Other revenue
3 039
2 816
2 763
2 986
Lease income
2 986
2 763
53
53
Government grants*
53
53
67 273
68 459
Total revenue
68 459
67 273
Refer to the segment information for the disaggregation of revenue
streams.
* Amortisation of deferred revenue; namely the Security of Supply Petroleum
Levy of 7,5 cents per litre, which the Government through the regulator
allowed Transnet Pipelines to levy and collect from customers through the
tariff during the fiscal years from 2010/11 to 2012/13, as the Government’s
contribution to the cost of the New Multi-Product Pipeline (NMPP) between
Durban and Gauteng following the Government’s request for the pipeline’s size
to be increased from 16 inches to 24 inches. The levy was accounted for as
deferred revenue/Government grant in accordance with the Group Accounting
policy and is recognised over the life of the pipeline of 75 years (see note 16.3).
Performance obligations partially satisfied in previous periods
239
241
Rail freight
241
239
Revenue recognised in the current financial year in respect of
performance obligations that were partially satisfied in previous
periods relates to the following:
Rail freight – goods-in-transit at 31 March 2021 whose delivery was
completed in the current financial year.
Performance obligations relating to contracts partially unsatisfied at
year end
236 200
57 700
Rail freight and ports
57 700
236 200
The Group expects revenue of R57,7 billion in future periods from performance obligations that were unsatisfied or partially unsatisfied at
31 March 2022, with respect to committed volumes to be transported over rail or processed through the ports on long-term take-or-pay
contracts with customers. The amounts exclude variable consideration such as take-or-pay penalties, demurrage, volume rebates and
other penalties that may be applicable in future.
Period
R million
%
31 March 2023
19 300
33
31 March 2024
9 500
17
31 March 2025
9 900
17
31 March 2026
9 300
16
31 March 2027 and beyond
9 700
17
Total
57 700**
100
**
The reduction in expected revenue from the prior year is due to the cancellation of take-or-pay contracts that are being renegotiated. IFRS 15 only requires the
disclosure of contracted amounts at reporting date.
The Group applies the practical expedient in paragraph 121 of IFRS 15 Revenue from Contracts with Customers, and does not
disclose information about remaining performance obligations on contracts where either:
– The original contractual period is for one year or less; or
– The Group’s right to consideration from a customer corresponds directly with the Group’s performance completed to date.
Significant judgements
In the prior year the Group, through its Freight Rail division did not recognise R265,3 million from Prasa in accordance with IFRS 15 Revenue
from Contracts with Customers as the collectability requirement was not met due to a history of late and non-payment by Prasa, as well as its
subsequent placement under administration by the Minister of Transport on 9 December 2019. Transnet continues to engage with Prasa and
the South African government to ensure recovery of all amounts owed by Prasa. In the current reporting period Transnet recognised
R249 million of revenue from Prasa that related to prior years, as the collectability requirements for these invoices was met following a set-off
agreement between Transnet and Prasa.
82
158
Accommodation and refreshments
158
82
1 163
1 317
Electronic data costs
1 317
1 163
6 660
8 002
Energy costs
8 002
6 660
578
574
Haulage costs
574
578
622
605
Health and sanitation
605
622
287
300
Insurance
300
287
2 223
2 392
Maintenance costs
2 392
2 223
522
418
Managerial and technical consulting fees
418
522
426
803
Material costs
803
426
1 202
1 223
Lease expenses (refer note 4.1)
1 223
1 202
24 210
26 194
Personnel costs
26 194
24 210
34
36
Printing and stationery
36
34
617
137
Loss on disposal of property, plant and equipment
137
617
62
55
Promotions and advertising
55
62
1 742
1 738
Security
1 738
1 742
172
156
Telecommunications
156
172
96
74
Transport
74
96
21
15
Research and development costs
15
21
476
487
Water
487
476
3 735
582
Third party claims
582
3 735
2 883
(256)
Other (income)/costs2
(256)
2 883
47 813
45 010
45 010
47 813
1
Includes COVID-19 related expenses of R109 million (2021: R232 million).
2
Other (income)/costs is mainly made up of operating income relating to scrap income, lease recoveries, Prasa related recoveries, and insurance recoveries
partially offset by environmental management expense (2022: R323 million and 2021: R2,1 billion), rates and taxes, corporate and social investment costs, and
travel costs.
5859
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
3.
Depreciation and amortisation
4.Profit from operations, impairment of assets,
7 3118 100
58
66
192
184
295
281
801
882
431
637
28
24
5 4945 993
12
33
5 751
5 940
1 755
1 971
1 226
1 065
2 770
2 904
588
602
88
44
7
5
3
2
490
551
Depreciation and derecognition (refer note 9)
Depreciation and derecognition – owned assets at historic cost
Aircraft
Floating craft
Land and land improvements
Buildings and structures
Machinery, equipment and furniture
Permanent way and works
Rolling stock and containers
Vehicles
Depreciation and derecognition – owned assets revalued portion
Rail infrastructure
Pipeline networks
Port facilities
Depreciation and derecognition – right-of-use assets at historic cost
Buildings and structures
Machinery, equipment and furniture
Permanent way and works
Vehicles
8 1007 311
66
58
184
192
281
295
882
801
637
431
24
28
5 9935 494
33
12
5 940
5 751
1 971
1 755
1 065
1 226
2 904
2 770
602
588
44
88
5
7
2
3
551
490
4.1 Profit from operations before impairment of assets, dividends
received, post-retirement benefit obligation expense, fair value
adjustments and income from associates and joint ventures
is stated after taking into account the following amounts:
Lease expenses
Variable lease payments not included in the measurement
68
25
of lease liabilities
25
68
32
38
Expenses relating to short-term leases
38
32
1 102
1 160
Expenses relating to leases of low-value assets
1 160
1 102
1 202
1 223
1 223
1 202
Directors’ and executives’ emoluments (refer note 38)
13
14
Executive directors
14
13
6
6
Non-executive directors
6
6
72
72
Senior executives
72
72
91
92
92
91
4.2.1 Impairment of financial assets
691
381
Trade receivables from contracts with customers
381
691
13 650
14 642
14 642
13 650
Amortisation of intangible assets (refer note 11)
222
205
Software and licences
205
222
13 872
14 847
Total depreciation, derecognition and amortisation
14 847
13 872
4.1 Profit from operations before impairment of assets, dividends
received, post-retirement benefit obligation expense, fair value
adjustments and income from associates and joint ventures
is stated after taking into account the following amounts:
Auditors’ remuneration
Group auditors
50
32
Audit fees – current year
32
50
52
83
Audit fees – prior year
83
52
4
—
Fees for audit-related and other services
—
4
1
—
Expenses
—
1
107
115
115
107
34
34
987
415
415
987
3 399
2 124
Property, plant and equipment (refer note 9)
2 124
3 399
—
(5)
Intangible assets (refer note 11)
(5)
—
3 399
2 119
2 119
3 399
* Impairment of non-financial assets mainly arose at Freight Rail from the 2022
financial year physical verification process on rolling stock and the index
valuation and CWIP assessment related impairments at Port Terminals.
4.3
Dividends received
—
9
Dividends from associate
—
—
4.4 Post-retirement benefit obligation expense
18
11
Transport Pension Fund: Transnet Sub-fund
11
18
—
—
Transnet Second Defined Benefit Fund
—
—
5
4
Transnet Top Management pensions
4
5
41
39
Transnet Workmen’s Compensation Act pensioners
39
41
27
21
Transnet SATS pensioners’ post-retirement medical benefits
21
27
25
26
Transnet employees’ post-retirement medical benefits
26
25
86
89
Other post-retirement and medical benefits (refer note 23)
89
86
202
190
190
202
6061
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
Restated
Restated
(770)
9 814
Fair value adjustment of investment property (refer note 10)
9 814
(770)
(542)
288
Derivative fair value adjustments (refer note 14)
288
(542)
97
48
Fair value adjustments on firm commitments
48
97
(6)
25
Fair value adjustments on other financial assets held at FVTPL
25
(6)
Reclassification of fair value adjustments on Government bonds
—
—
held at FVTOCI
—
(22)
(1 221)
10 175
10 175
(1 243)
57
(2)
Net foreign exchange (gain)/loss on translation
(2)
57
44
57
Discounts on bonds amortised
57
44
130
192
Interest on lease liabilities
192
130
158
275
Unwinding of discounts on provisions
275
158
12 116
11 370
Interest cost – financial liabilities at amortised cost
11 370
12 116
12 505
11 892
Gross finance costs
11 892
12 505
(1 209)
(1 208)
Borrowing costs capitalised
(1 208)
(1 209)
11 296
10 684
10 684
11 296
* The weighted average capitalisation rate on funds borrowed generally
is 9,11% per annum (2021: 9,33% per annum).
8.1
Tax recognised in other comprehensive income
Arising on the tax effects of items recognised in comprehensive
income:
(Gain)/loss on revaluation of pipeline networks and decommissioning
137
(210)
restoration liability
(210)
137
(2 927)
(986)
Gain on revaluation of port facilities and decommissioning liability
(986)
(2 927)
369
(1 794)
(Gain)/loss on revaluation of rail infrastructure
(1 794)
369
(20)
(568)
Gain on revaluation of land, building and structures
(568)
(20)
2
(1)
(Gain)/loss on revaluation of investments to market value (Rumo Ltd)
(1)
2
—
—
Gain on revaluation of debt instrument
(3)
(14)
27
1
Cash flow hedge loss
1
27
14
(22)
Actuarial (gain)/loss on post-retirement benefit obligations
(22)
14
—
774
Impact of change in corporate tax rate
774
—
(2 398)
(2 806)
Total tax recognised in other comprehensive income
(2 809)
(2 412)
81
7
Bank deposits
21
81
157
105
Financial assets at amortised cost
105
157
—
—
Financial assets at FVTOCI
—
18
238
112
126
256
—
South African normal tax
8
—
– Current year
10
(2 556)
Deferred tax (refer note 26)
435
– Current year
431
(2 544)
(2 556)
435
441
(2 536)
%
%
Reconciliation of tax rate
%
%
28,00
27,00
Standard rate – South African normal tax
27,00
28,00
(5,34)
(19,08)
Adjustment for differences
(18,97)
(5,50)
(4,68)
(6,59)
Expenses/(income) not included for tax purposes
(6,48)
(4,68)
0,05
0,13
Permanent provisions
0,13
0,05
Depreciation on property, plant and equipment (PPE) not
(1,90)
3,56
subject to tax allowances
3,56
(1,90)
(2,40)
(1,46)
Impairment of PPE
(1,46)
(2,40)
0,04
(9,65)
Fair value adjustments
(9,65)
0,04
—
(0,21)
Disposal of fixed assets not subject to tax allowances
(0,21)
—
(0,16)
0,58
Capital legal, professional and other expenses
0,69
(0,16)
—
0,02
Disallowed donations
0,02
—
(0,30)
0,44
Fruitless and wasteful expenditure
0,44
(0,30)
(0,01)
—
Fines, interest and penalties
—
(0,01)
(0,66)
(12,49)
Adjustment to deferred tax charge
(12,49)
(0,82)
0,12
(0,26)
Capital gain on disposal of fixed assets
(0,26)
0,12
0,05
—
Treasury instruments
—
0,05
0,39
0,84
PPE adjustments
0,84
0,23
(1,24)
—
Leasehold improvements
—
(1,24)
(0,02)
—
FEC adjustments
—
(0,02)
292 774
300 738
468 214
496 809
(175 440)
(196 071)
231 891
236 441
450
474
5 034
5 036
7 114
6 044
25 516
26 115
13 014
13 373
1 356
1 426
140 879
146 173
3 895
4 377
34 633
33 423
(72 931)
(79 376)
(270)
(309)
(1 668)
(1 852)
(1 529)
(1 802)
(10 522)
(11 141)
(9 107)
(9 495)
(221)
(236)
(47 671)
(52 536)
(1 943)
(2 005)
9.
Property, plant and equipment
Property, plant and equipment is stated at historical cost except for
pipeline networks, port facilities and rail infrastructure, which are
stated at revalued amounts.
Net book value
Gross carrying value
Accumulated depreciation and impairment
Comprising:
Historical cost
Gross carrying value
– Aircraft
– Floating craft
– Land and land improvements
– Buildings and structures
– Machinery, equipment and furniture
– Permanent way and works
– Rolling stock and containers
– Vehicles
– Capital work-in-progress**
Accumulated depreciation
– Aircraft
– Floating craft
– Land and land improvements
– Buildings and structures
– Machinery, equipment and furniture
– Permanent way and works
– Rolling stock and containers
– Vehicles
300 738
292 774
496 809
468 214
(196 071)
(175 440)
236 441
231 891
474
450
5 036
5 034
6 044
7 114
26 115
25 516
13 373
13 014
1 426
1 356
146 173
140 879
4 377
3 895
33 423
34 633
(79 376)
(72 931)
(309)
(270)
(1 852)
(1 668)
(1 802)
(1 529)
(11 141)
(10 522)
(9 495)
(9 107)
(236)
(221)
(52 536)
(47 671)
(2 005)
(1 943)
0,02
(0,09)
Firm commitments
(0,09)
0,02
0,02
—
Impairment of SAX loan
—
0,02
—
0,51
Provisions not through the income statement
0,51
—
—
(13,49)
Change in corporate tax rate
(13,49)
—
22,66
7,92
Effective rate of tax
8,03
22,50
The income statement charge is comprised mainly of deferred tax. The charge arose mainly due to the increase in profit before tax for the year (2021:
loss before tax), together with an increase in the fair value adjustments that are not recognised for tax purposes, offset largely by the impact of the
company’s calculated tax loss. The result was then further offset by the impact of the reduction of the corporate tax rate from 28% to 27%
62 which was substantively enacted in the Minister of Finance’s 2021/22 Budget Speech, resulting in a decrease in the provision of deferred tax.
**
Capital work-in-progress includes R5 478 million (2021: R5 859 million) advance payments to original equipment manufacturers (OEMs) in respect of the
acquisition of 99 electric locomotives from CRRC E-loco Supply (Pty) Ltd (CRRC E-loco), 210 diesel locomotives from CRRC SA Rolling Stock Pty (Ltd)
(CRRC SA) and 158 diesel locomotives from Bombardier Transportation South Africa Pty (Ltd) (BT) respectively. Total capital work-in-progress under the three
contracts at 31 March 2022 was R13 026 million (2021: R14 068 million).
Transnet has filed an application with the Gauteng High Court to have the supply agreements with the above OEMs reviewed and set aside, with just and
equitable relief. The locomotive supply agreements with CRRC E-loco and CRRC SA are currently suspended pending the outcome of the court application,
and capitalisation of borrowing costs on these contracts has been suspended in accordance with IAS 23 Borrowing Costs. The supply agreement with BT was
not suspended and deliveries are continuing, with the delivery schedule expected to be completed in the next four years.
63
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
9.Property, plant and equipment continued
(10 319)
(11 904)
Accumulated impairment
(11 904)
(10 319)
(4)
(191)
– Floating craft
(191)
(4)
(61)
(80)
– Buildings and structures
(80)
(61)
(235)
(292)
– Machinery, equipment and furniture
(292)
(235)
—
—
– Permanent way and works
—
—
(6 774)
(8 365)
– Rolling stock and containers
(8 365)
(6 774)
(43)
(66)
– Vehicles
(66)
(43)
(3 202)
(2 910)
– Capital work-in-progress
(2 910)
(3 202)
Net book value of property, plant and equipment stated
148 641
145 161
at historical cost
145 161
148 641
Revaluation
236 323
260 368
Gross carrying value
260 368
236 323
58 574
63 019
– Pipeline networks
63 019
58 574
118 147
125 171
– Port facilities
125 171
118 147
59 602
72 178
– Rail infrastructure
72 178
59 602
Accumulated depreciation
(89 991)
(102 365)
(102 365)
(89 991)
(21 896)
(26 233)
– Pipeline networks
(26 233)
(21 896)
(49 508)
(54 203)
– Port facilities
(54 203)
(49 508)
(18 587)
(21 929)
– Rail infrastructure
(21 929)
(18 587)
Accumulated impairment
(2 199)
(2 426)
(2 426)
(2 199)
(198)
(207)
– Pipeline networks
(207)
(198)
(1 838)
(1 862)
– Port facilities
(1 862)
(1 838)
(163)
(357)
– Rail infrastructure
(357)
( 163)
Net book value of property, plant and equipment stated
144 133
155 577
at revalued amounts
155 577
144 133
292 774
300 738
Total net book value
300 738
292 774
Land, buildings and structures
A register of land, buildings and structures is available for inspection
at the Company.
During the year, the Group transferred R3,0 billion to (2021:
R130 million to) investment property from property, plant and
equipment. The fair value of property transferred from investment
property is their deemed cost for subsequent accounting in
accordance with IAS 16 Property, Plant and Equipment.
Assets under lease
Included in property, plant and equipment are assets under lease with a
1 585
2 008
carrying value of
2 008
1 585
9.Property, plant and equipment continued
Pipeline networks
Pipeline networks were revalued at 31 March 2022 based on the
depreciated replacement cost (DRC) and discounted cash flow methods.
An external index valuation was performed as at 31 March 2022 by Ernst
and Young, an independent firm of professional valuers, on the basis of
the depreciated replacement cost methodology.
As at 31 March 2022, the index valuation resulted in a fair value of
R38,1 billion for all assets (2021: R34,3 billion based on a full valuation
conducted by Ernst and Young). The discounted cash flow method
resulted in a fair value of R39,1 billion at 31 March 2022 for all assets
(2021: R47,0 billion). The index valuation was applied to assets in the
old pipeline network and resulted in a net increase of R905 million
(2021: R257 million net decrease) to the carrying value of the old
pipeline assets. The new pipeline network assets remained at carrying
value as per the point of range methodology.
Fair value hierarchy
36 480
36 579
Level 3 – significant unobservable inputs*
36 579
36 480
32 000
31 582
The historic cost carrying values of these assets amount to
31 582
32 000
Port facilities
Port infrastructure
Port infrastructure was revalued at 31 March 2022 based on the
depreciated optimised replacement cost and discounted cash flow
methods.
The discounted cash flow method resulted in a fair value of
R61,4 billion (2021: R60,5 billion) as at 31 March 2022, which resulted
in an increase of R3,9 billion (2021: R10,5 billion) to the carrying value
of the port infrastructure assets. The full external revaluation based on
the depreciated optimised replacement cost method was performed in
the prior year by Zutari (Pty) Ltd, an independent firm of professional
valuers and resulted in a fair value of R96,4 billion.
The fair value of port infrastructure assets based on the discounted
cash flow method is sensitive to changes in the discount rate and
terminal growth rates. The rates applied at 31 March 2022 were
11,12% and 5,66% respectively. For example, a 0,1% change in the
discount rate would result in a fair value change of R0,8 billion. Similarly,
a 0,1% change in the terminal growth rate would result in the fair value
changing by R0,7 billion.
Port operating assets
An index valuation was applied to port operating assets and resulted
in an increase of R169,3 million (2021: R59,4 million decrease) in the
carrying value of the port operating assets. As at 31 March 2022, the
fair value of port operating assets based on the index valuation amounts
to R7,7 billion (2021: R6,4 billion).
Fair value hierarchy
66 801
69 106
Level 3 – significant unobservable inputs*
69 106
66 801
21 517
22 629
The historical carrying values of these assets amount to
22 629
21 517
* For more detail regarding the measurement of level 3 fair values refer to the table on page 67 in note 9.
6465
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
9.Property, plant and equipment continued
9.Property, plant and equipment continued
Measurement of level 3 fair values
The table below shows the valuation techniques and significant unobservable inputs applied in measuring level 3 fair values for assets at
31 March 2022.
Asset groupValuation techniqueSignificant unobservable inputs Range (weighted average)
Rail infrastructure
Rail infrastructure was revalued on 31 March 2022 based on the
discounted cash flow method.
The full revaluation based on the depreciated optimised replacement
cost method is performed every three years and was most recently
performed at 31 March 2022, by Thelo and Duetsche Bhan
consortium, an independent firm of professional valuers and resulted
in a fair value of R224,8 billion. The discounted cash flow method
resulted in a rail infrastructure revaluation of R6 643 million
(2021: R1 318 million) at 31 March 2022.
The discounted cash flow valuation is sensitive to changes in key
inputs, such as the discount rate, terminal growth rate and operating
cash flows. For example, a 0,1% change in the terminal growth rate
would change the asset value by R963 million, whereas the same
change in the discount rate will change the asset value by R2,7 billion.
Fair value hierarchy
40 852
49 892
Level 3 – significant unobservable inputs*
49 892
40 852
38 346
41 865
The historical carrying values of these assets amount to
41 865
38 346
Pipeline networks
Port infrastructure
Depreciated replacement cost
(DRC)
Discounted cash flow
Depreciated optimised
replacement cost***
Discounted cash flow
•
Replacement cost new
•
Physical condition assessment
•
Obsolescence
•
Remaining useful life
•
Discount rate (%)
• Terminal growth rate (%)
•
Valuation period (years)
•
Replacement cost new
•
Physical condition assessment
•
Obsolescence
•
Remaining useful life
• Indices – Marine index*
– Dredging index*
•
Discount rate (%)
• Terminal growth rate (%)
•
Valuation period (years)
r
r
r
r
13,93
4,55
10
r
r
r
r
110,40
116,00
11,12
5,66
7
* For more detail regarding the measurement of level 3 fair values refer to the table on page 67 in note 9.
Useful lives and residual values
In accordance with IAS 16 Property, Plant and Equipment, the useful lives and residual values of property, plant and equipment are reviewed at
each reporting date. The useful lives are estimated by management based on historic analysis, benchmarking and other available information.
The residual values are based on the estimated recoverable amount from disposal of the asset at the end of its economic life.
Residual values
During the year, management conducted its annual assessment of residual values on existing assets. The exercise resulted in a change in
the residual values of rail infrastructure assets and there were no changes on the rolling stock assets. The residual values were determined
on average income recovered in the past financial year from scrap steel market prices international Rotterdam. The current reporting period
impact is a decrease in depreciation of R49 million (2021: R35 million decrease).
Useful lives
The useful lives review was performed in line with Group accounting policy. The review done was performed by asset owners, users and
specialists. The results of the assessment were a net decrease of R51 million (2021: R403 million decrease) in the depreciation expense due to
a general decrease in the useful lives of rail infrastructure and general assets.
Fully depreciated assets in use
The assets that were fully depreciated as at 31 March 2022 that are still in use have a historic cost amount of R7,2 billion (2021: R5 billion)
and remain in the statement of financial position. The remaining carrying amounts will be retained in the asset register until the assets are
disposed.
Port operating assets
Depreciated optimised
replacement cost***
Discounted cash flow
Rail infrastructure
Depreciated optimised
replacement cost***
Discounted cash flow
•
Replacement cost new
•
Physical condition assessment
•
Obsolescence
•
Remaining useful life
• PPI – General and special purpose
machinery (142,1)**
• PPI – Transport equipment
(142,7)**
•
Discount rate (%)
• Terminal growth rate (%)
•
Valuation period (years)
•
Replacement cost new
•
Physical condition assessment
•
Obsolescence
•
Remaining useful life
•
Discount rate (%)
• Terminal growth rate (%)
•
Valuation period (years)
r
r
r
r
111, 10
98,00
11,52
5,03
20
r
r
r
r
11,11
4,54
20
Property, plant and equipment pledged as security for loans
Rolling stock and containers includes locomotives with a carrying value of R28 727 million (2021: R30 604 million) which are pledged as
security for loans amounting to R15 216 million (2021: R17 792 million) raised to fund the acquisition of the locomotives (refer note 36).
*
Base year = 2019.
**
Base year = 2021.
***
The depreciated optimised replacement cost method values assets at the amount it would cost to replace the asset with a technologically modern equivalent
new asset with similar service potential (i.e. capacity, functionality and remaining useful life), taking into account the age and physical condition of the asset,
obsolescence and allowing for any differences in the quantity and quality of output and in operating costs.
r
Range or weighted average not applicable.
6667
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
9. Property, plant and equipment continued
PPE reconciliation
,
Machinery
Land and
Buildings
equipment
Permanent
Rail
Rolling
Capital
31 March
Floating
land
and
and
way and
Pipeline
Port
infra-
stock and
work-in-
2022
Aircraft
craft
improvements
structures
furniture
works
networks
facilities
structure
containers
Vehicles
progress
Total
R million
R million
R million
R million
R million
R million
R million
R million
R million
R million
R million
R million
R million
Balance at the beginning of the year as previously reported
Historical cost and revaluation
450
5 034
7 114
25 516
13 014
1 356
58 574
118 147
59 602
140 879
3 895
34 633
468 214
Accumulated depreciation
(270)
(1 668)
(1 529)
(10 522)
(9 107)
(221)
(21 896)
(49 508)
(18 587)
(47 671)
(1 943)
—
(162 922)
Accumulated impairment
—
(4)
—
(61)
(235)
—
(198)
(1 838)
(163)
(6 774)
(43)
(2 649)
(11 965)
Opening net carrying value at 1 April
180
3 362
5 585
14 933
3 672
1 135
36 480
66 801
40 852
86 434
1 909
31 984
293 327
Adjustment to opening balance
—
—
—
—
—
—
—
—
—
—
—
(553)
(553)
Restated opening net carrying value at 1 April
180
3 362
5 585
14 933
3 672
1 135
36 480
66 801
40 852
86 434
1 909
31 431
292 774
Current year movements
Replacements
43
—
5
33
98
—
—
59
3 924
2 241
1
3 966
10 370
Expansions
—
2
35
17
15
—
—
1
—
1
—
1 801
1 872
Acquisition through lease
—
—
—
—
—
—
—
—
—
—
998
—
998
Change in decommissioning liability
—
—
(19)
—
—
—
—
—
—
—
—
—
(19)
Disposals
—
—
—
(21)
—
—
(25)
(17)
(1)
(56)
(3)
(122)
(245)
Depreciation
(66)
(184)
(281)
(926)
(642)
(26)
(1 065)
(2 904)
(1 713)
(5 400)
(581)
—
(13 788)
Derecognition
—
—
—
—
—
—
—
—
(258)
(593)
(3)
—
(854)
Revaluation/(devaluation) adjustment recognised in other
comprehensive income
—
—
1 840
160
—
—
905
4 092
6 643
—
—
—
13 640
Impairment/(reversal of impairment) recognised in
profit or loss
—
(187)
(7)
(12)
(70)
—
(10)
(23)
(193)
(1 889)
(23)
290
(2 124)
Transferred to intangibles assets
—
—
—
—
(46)
—
—
—
—
—
—
—
(46)
Transfers to non-current assets classified as held-for-sale
—
—
(6)
—
(25)
—
—
(15)
—
(19)
—
—
(65)
Transfer from/(to) investment property
—
—
(3 108)
348
2
—
—
—
—
—
—
(32)
(2 790)
Forex adjustment
—
—
—
—
10
—
—
—
—
—
—
—
10
Borrowing costs capitalised
—
—
—
—
—
—
—
—
—
—
—
1 208
1 208
Release of firm commitment
—
—
—
—
—
—
—
—
—
—
—
(11)
(11)
Unrealised firm commitment
—
—
—
—
—
—
—
—
—
—
—
23
23
Transfer from inventory
—
—
—
—
(3)
—
—
—
—
(80)
—
(132)
(215)
Transfer from capital work-in-progress to assets
8
—
198
362
575
81
294
1 112
638
4 633
8
(7 909)
—
(15)
(369)
(1 343)
(39)
(86)
55
99
2 305
9 040
(1 162)
397
(918)
7 964
Closing carrying value
165
2 993
4 242
14 894
3 586
1 190
36 579
69 106
49 892
85 272
2 306
30 513
300 738
Made up as follows:
Historical cost and revaluation
474
5 036
6 044
26 115
13 373
1 426
63 019
125 171
72 178
146 173
4 377
33 423
496 809
Accumulated depreciation and derecognition
(309)
(1 852)
(1 802)
(11 141)
(9 495)
(236)
(26 233)
(54 203)
(21 929)
(52 536)
(2 005)
—
(181 741)
Accumulated impairment
—
(191)
—
(80)
(292)
—
(207)
(1 862)
(357)
(8 365)
(66)
(2 910)
(14 330)
Closing carrying value at 31 March
165
2 993
4 242
14 894
3 586
1 190
36 579
69 106
49 892
85 272
2 306
30 513
300 738
PPE comprise owned and leased assets, as follows
(at carrying value):
– Property, plant and equipment owned
165
2 993
4 239
14 856
3 575
1 175
36 579
69 104
49 892
85 272
367
30 513
298 730
– Right-of-use assets
—
—
3
38
11
15
—
2
—
—
1 939
—
2 008
Closing carrying value at 31 March
165
2 993
4 242
14 894
3 586
1 190
36 579
69 106
49 892
85 272
2 306
30 513
300 738
Right-of-use assets
Additions during the year
—
—
—
—
—
—
—
—
—
—
998
—
998
Depreciation expense during the year (included above)
—
—
—
(44)
(5)
(3)
—
—
—
—
(393)
—
(445)
6869
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2021
9. Property, plant and equipment continued
PPE reconciliation (restated)
,
Machinery
Land and
Buildings
equipment
Permanent
Rail
Rolling
Capital
31 March
Floating
land
and
and
way and
Pipeline
Port
infra-
stock and
work-in-
2021
Aircraft
craft
improvements
structures
furniture
works
networks
facilities
structure
containers
Vehicles
progress
Total
R million
R million
R million
R million
R million
R million
R million
R million
R million
R million
R million
R million
R million
Balance at the beginning of the year as previously reported
Historical cost and revaluation
438
5 033
6 429
25 170
12 951
1 122
56 540
100 958
57 493
135 214
3 282
32 711
437 341
Accumulated depreciation
(212)
(1 476)
(1 237)
(9 706)
(8 675)
(190)
(18 417)
(41 897)
(16 825)
(42 944)
(1 900)
—
(143 479)
Accumulated impairment
—
—
—
(41)
(197)
(1)
(359)
(1 652)
(159)
(4 484)
(32)
(1 640)
(8 565)
Opening net carrying value at 1 April
226
3 557
5 192
15 423
4 079
931
37 764
57 409
40 509
87 786
1 350
31 071
285 297
Adjustment to opening balance
—
—
—
—
—
—
—
—
—
—
—
(528)
( 528)
Restated opening net carrying value at 1 April
226
3 557
5 192
15 423
4 079
931
37 764
57 409
40 509
87 786
1 350
30 543
284 769
Current year movements
Replacements
—
—
—
2
52
—
—
7
2 475
4 377
1
5 976
12 890
Expansions
—
—
7
12
7
11
—
10
—
1
—
1 973
2 021
Acquisition through lease
—
—
—
—
—
—
—
—
—
—
1 005
—
1 005
Change in decommissioning liability
—
—
34
(107)
—
—
—
—
—
—
—
—
(73)
Disposals
—
—
(9)
(1)
(4)
(2)
—
(3)
—
(13)
—
(585)
(617)
Depreciation
(58)
(192)
(295)
(889)
(437)
(17)
(1 226)
(2 770)
(1 671)
(5 011)
(501)
—
(13 067)
Derecognition
—
—
—
—
(1)
(14)
—
—
(84)
(483)
(1)
—
(583)
Revaluation/(devaluation) adjustment recognised in other
comprehensive income
—
—
3
12
—
—
(257)
10 472
(1 318)
—
—
—
8 912
Impairment/(reversal of impairment) recognised in
profit or loss
—
(4)
—
(21)
(69)
—
161
(231)
(4)
(2 197)
(10)
(1 024)
(3 399)
Transferred to intangibles assets
—
—
—
—
—
—
—
—
—
—
—
(79)
(79)
Transfers to non-current assets classified as held-for-sale
—
—
—
—
(44)
—
—
37
—
(9)
—
—
(16)
Transfer from/(to) investment property
—
—
(101)
(13)
—
—
—
—
—
—
—
(16)
(130)
Forex adjustment
—
—
—
19
—
—
—
—
—
(263)
—
(10)
(254)
Borrowing costs capitalised
—
—
—
—
—
—
—
1
—
—
—
1 208
1 209
Release of firm commitment
—
—
—
—
—
—
—
—
—
—
—
21
21
Unrealised firm commitment
—
—
—
—
—
—
—
—
—
—
—
45
45
Transfer from inventory
—
—
—
—
—
—
—
—
—
99
—
21
120
Transfer from capital work-in-progress to assets
12
1
754
496
89
226
38
1 869
945
2 147
65
(6 642)
—
(46)
(195)
393
(490)
(407)
204
(1 284)
9 392
343
(1 352)
559
888
8 005
Closing carrying value
180
3 362
5 585
14 933
3 672
1 135
36 480
66 801
40 852
86 434
1 909
31 431
292 774
Made up as follows:
Historical cost and revaluation
450
5 034
7 114
25 516
13 014
1 356
58 574
118 147
59 602
140 879
3 895
34 633
468 214
Accumulated depreciation and derecognition
(270)
(1 668)
(1 529)
(10 522)
(9 107)
(221)
(21 896)
(49 508)
(18 587)
(47 671)
(1 943)
—
(162 922)
Accumulated impairment
—
(4)
—
(61)
(235)
—
(198)
(1 838)
(163)
(6 774)
(43)
(3 202)
(12 518)
Closing carrying value at 31 March
180
3 362
5 585
14 933
3 672
1 135
36 480
66 801
40 852
86 434
1 909
31 431
292 774
PPE comprise owned and leased assets, as follows
(at carrying value):
– Property, plant and equipment owned
180
3 362
5 582
14 906
3 654
1 117
36 480
66 799
40 852
86 434
392
31 431
291 189
– Right-of-use assets
—
—
3
27
18
18
—
2
—
—
1 517
—
1 585
Closing carrying value at 31 March
180
3 362
5 585
14 933
3 672
1 135
36 480
66 801
40 852
86 434
1 909
31 431
292 774
Right-of-use assets
Additions during the year
—
—
—
—
—
—
—
—
—
—
1 005
—
1 005
Depreciation expense during the year (included above)
—
—
—
(88)
(7)
(3)
—
—
—
—
(490)
—
(588)
7071
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
17 143
16 506
Carrying value at the beginning of the year
16 506
17 143
130
2 790
Transferred from property, plant and equipment (refer note 9)
2 790
130
(770)
9 814
Fair value adjustment recognised in profit and loss (refer note 5)
9 814
(770)
3
2
Additions
2
3
—
—
Transferred to assets classified as held-for-sale (refer note 20)
—
—
16 506
29 112
Carrying value at the end of the year*
29 112
16 506
Fair value hierarchy
17 141
29 861
Level 3 – significant unobservable inputs
29 861
17 141
*
The carrying amount of investment property at the end of the year excludes the lease smoothing adjustments of R749 million (2021: R635 million) which would
previously have been included in the fair value of investment property.
The investment property portfolio consist of commercial properties (ie office and retail) and industrial properties across South Africa. The
valuation of the Group’s investment properties at 31 March 2022 was carried out by independent external valuers, and conforms to the Property
Valuers Profession Act, No. 47 of 2000. The fair value was derived by capitalising the normalised net annual income at market derived
capitalisation rates, which are adjusted where appropriate, to reflect the risk profile of each individual property. The capitalisation rate is
calculated by dividing the net annual return from rental by the purchase price or market value of a property. The significant unobservable inputs
applied are the capitalisation rates which range from 8,5% – 13,0% and the net rental/m2 which ranges from R5,00 – R25,00/m2 for normal land
and R25,00 – R150,00/m2 for specialised land at the ports, and from R25,00 – R50,00 for improvements depending on the area and location.
889
740
3 883
3 913
(2 994)
(3 173)
889
740
3 883
3 913
3 778
3 883
72
5
(46)
(24)
79
49
(2 994)
(3 173)
(2 817)
(2 994)
45
24
(222)
(205)
— 5
—(3)
11. Intangible assets
Intangible assets
Cost
Accumulated amortisation and impairment
Comprising:
Finite life intangible assets
Software and licences: carrying value*
Cost
Balance at the beginning of the year
Additions
Disposals
Transfers from property, plant and equipment (refer note 9)
Accumulated amortisation and impairment
Balance at the beginning of the year
Disposals
Amortisation (refer note 3)
Reversal of impairment (refer note 4.2.2)
Transfers from property, plant and equipment (refer note 9)
740
889
3 913
3 883
(3 173)
(2 994)
740
889
3 913
3 883
3 883
3 778
5
72
(24)
(46)
49
79
(3 173)
(2 994)
(2 994)
(2 817)
24
45
(205)
(222)
5 —
(3)
—
The fair value of investment property is sensitive to the capitalisation rates, which is a measure of the perceived risk associated with the
stability of the income stream produced by the property. The higher the capitalisation rate, the higher the perceived risk and the lower the fair
value; and conversely for a lower capitalisation rate. Factors that affect the capitalisation rates include the expected return on the property, the
income growth rate, lease duration, property type, location and the replacement cost of the property, among others.
The gross lease income earned by the Group from its investment properties which are leased out under operating leases amounted to
R2 986 million (2021: R2 763 million). Of this amount, nil related to variable lease payments that do not depend on an index or a rate. Direct
operating expenses arising on the investment properties during the year amounted to R1 305 million (2021: R1 253 million). No material direct
expenses (including repairs and maintenance) arising on investment property, that did not generate rental income during the year, were
incurred.
A register containing the information required by Regulation 25(3) of the Companies Regulations, 2011 is available for inspection at the
registered office of the Company.
889 740740889
*
Includes capital-work-in-progress of R162 million (2021: R168 million).
12.
Investments in subsidiaries (refer note 37)
——Shares at carrying value
——Amounts owing by subsidiaries
——
——Provision for impairment and losses
——
13.
Investments in associates and joint ventures
(refer note 37)
8
8
93
108
8
8
Balance at the beginning of the year
108
95
—
—
Share of (loss)/profit
(6)
13
—
—
Dividends received
(9)
—
Directors’ valuation of unlisted investments in associates and joint
8
8
ventures
93
108
—
—
(Loss)/income from associates and joint ventures
(6)
13
7273
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
14. Derivative financial assets and liabilities
Both the Company and the Group use approved financial instruments,
in particular forward exchange contracts, cross-currency swaps and
interest rate swaps, to hedge the financial risks associated with
underlying business activities. All derivative financial instruments are
measured at fair value with gains or losses taken to profit or loss or
other comprehensive income – where cash flow hedge accounting is
applied.
The methods used to measure financial assets and financial liabilities
carried at fair value are disclosed in note 36, together with a description
of the Group’s financial instrument risks, and risk management
objectives and policies.
8 100
7 281
Derivative financial assets
7 281
8 100
14 080
8 100
Opening balance
8 100
14 080
(6 233)
(1 171)
Fair value adjustments
(1 171)
(6 233)
253
352
Derivatives settled and raised
352
253
2 427
1 507
Derivative financial liabilities
1 507
2 427
1 531
2 427
Opening balance
2 427
1 531
2 021
265
Fair value adjustments
265
2 021
(1 125)
(1 185)
Derivatives settled and raised
(1 185)
(1 125)
(8 254)
(1 436)
Net fair value adjustments
(1 436)
(8 254)
(542)
288
Derivative fair value adjustments (refer note 5)*
288
(542)
(1 709)
(1 663)
Finance costs
(1 663)
(1 709)
(6 003)
(61)
Recognised in other comprehensive income (refer note 22)
(61)
(6 003)
Comprise the following financial instruments:
8 080
8 080
787
Non-current assets
787
13
—
Forward exchange contracts
—
13
8 067
787
Cross-currency swaps and options
787
8 067
20
6 494
Current assets
6 494
20
20
30
Forward exchange contracts
30
20
—
6 464
Cross-currency swaps and options
6 464
—
2 363
1 458
Non-current liabilities
1 458
2 363
13
2
Forward exchange contracts
2
13
2 350
1 456
Interest rate swaps and options
1 456
2 350
64
49
Current liabilities
49
64
64
49
Forward exchange contracts
49
64
Hedge accounting
1:1
1:1
Hedge ratio
1:1
1:1
The hedged items and hedging instruments are denominated in the
same currencies and have the same nominal values, resulting in a hedge
ratio of 1:1 on all hedges.
*
Comprised of hedge ineffectiveness loss of R75 million (2021: R171 million loss) from cash flow hedges, fair value losses of R48 million (2021: R97 million loss)
on forward exchange contracts to which fair value hedge accounting was applied, and fair value gains on economic hedges to which hedge accounting was not
applied of R411 million (2021: R274 million loss).
74
14. Derivative financial assets and liabilities
continued
Fair value hedges of firm commitments
The Group entered into fair value hedges of the foreign exchange
risk on firm commitments to import items of property, plant and
equipment. The Group settles the contract price of these items by
making predetermined progress payments (in foreign currency) to
the relevant suppliers as specified milestones are achieved.
At 31 March 2022, the Group held a series of forward exchange
contracts as hedging instruments for this purpose. These hedges were
assessed to be effective. The ineffective portion of the hedge has been
recorded in profit and loss- fair value adjustments.
The fair values of these forward exchange contracts held as hedging
instruments at 31 March 2022 are as follows:
(24)
(19)
Currency bought forward – United States Dollar loss
(19)
(24)
—
(2)
Currency bought forward – Euro loss
(2)
—
(20)
—
Currency bought forward – Australian Dollar loss
—
(20)
The net fair value adjustment recognised in profit and loss on these
fair value hedges during the year was nil (2021: nil). This net fair value
adjustment comprised of a gain of R48 million (2021: R97 million
gain) due to foreign exchange gains on the firm commitments, and
losses of R48 million (2021: R97 million loss) on the forward exchange
contracts.
The nominal values of these forward exchange contracts at
31 March 2022 are as follows:
Currency bought forward – Rand equivalent
688
652
United States Dollar
652
688
—
52
Euro
52
—
3
—
Australian Dollar
—
3
million
million
Currency bought forward – foreign currency
million
million
41
41
United States Dollar
41
41
—
3
Euro
3
—
0,2
—
Australian Dollar
—
0,2
Cash flow hedges
Interest rate swaps
On 31 March 2022, the Group was party to interest rate swap contracts, which are designated as cash flow hedges of the interest rate risks
associated with rand-denominated borrowings detailed in the table below:
Nominal
Hedge interest
Hedge interest
Lender
Hedge counterparty
R million
rate payable
rate receivable
Maturity date
ABSA Bank Ltd
Nedbank
991
11,83 fixed
3 month JIBAR + 2,6%
02-Dec-2030
Bank of China – JHB Branch
Nedbank
1 250
11,83 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Nedbank Ltd
Nedbank
419
11,83 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Futuregrowth Asset Management (Pty) Ltd
Nedbank
419
11,83 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Old Mutual Life Assurance Co (SA) Ltd (R238 million) and
Nedbank
419
11,83 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Old Mutual Specialised Finance (Pty) Ltd (R181 million)
ABSA Bank Ltd
Nedbank
991
12,27 fixed
3 month JIBAR + 2,6%
02-Dec-2030
Bank of China – JHB Branch
Nedbank
1 250
12,27 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Nedbank Ltd
Nedbank
2 093
12,27 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Old Mutual Life Assurance Co (SA) Ltd (R402 million) and Old Mutual
Nedbank
Specialised Finance (Pty) Ltd (R298 million)
700
12,27 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Futuregrowth Asset Management (Pty) Ltd
Nedbank
742
12,27 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Investec Bank Ltd
TSDBF Old Mutual*
4 195
12,07 fixed
3 month JIBAR + 2,0%
22-Feb-2028
Liberty Group Ltd
TSDBF Old Mutual*
1 021
11,15 fixed
3 month JIBAR + 1,75%
19-Jul-2032
Old Mutual Life Assurance Company of South Africa (OMLACSA)
TSDBF Old Mutual*
(R488 million) and Old Mutual Specialised Finance (Pty) Ltd (OMSFIN)
837
11,15 fixed
3 month JIBAR + 2,05%
31-Mar-2033
(R349 million)
Standard Bank Corporate Investment Bank
TSDBF Old Mutual*
500
11,15 fixed
3 month JIBAR + 1,65%
21-Aug-2024
Total exposure
15 827
*
These interest-rate swap contracts were entered into with Transnet Second Defined Benefit Fund and have a carrying value of R582 million (2021: R990 million).
Refer to note 32.1.3.
The terms of the interest rate swaps closely match those of the rand-denominated borrowings they hedge and were assessed as highly
effective hedges. The amount of ineffectiveness recognised in profit and loss for the year with respect to these hedges was a R22 million gain
(2021: R25 million loss). The amount recycled to profit and loss to offset the hedged risks was a R986 million loss (2021: R1 032 million loss),
included in finance costs.
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
14.Derivative financial assets and liabilities continued
Cash flow hedges continued
Cross-currency interest rate swaps
On 31 March 2022, the Group was party to cross-currency interest rate swap contracts which are designated as cash flow hedges of
the foreign exchange and interest rate risks associated with foreign currency-denominated borrowings detailed in the table below:
Nominal
Hedge interest
Hedge interest
Lender
Hedge counterparty
USD million
rate payable
rate receivable
Maturity date
TNUS 22 GMTN US
Dollar bond
Tranche 1
JPMorgan Chase Bank – JHB Branch
500
8,98% fixed (ZAR)
4% fixed (USD)
26-Jul-2022
Tranche 2
RMB/Division of FirstRand Bank Ltd
500
8,935% fixed (ZAR)
4% fixed (USD)
26-Jul-2022
China Development
Bank (CDB)
Loan 1
JPMorgan Chase Bank – JHB Branch
259
3-month JIBAR + 4,35%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 2
JPMorgan Chase Bank – JHB Branch
12
3-month JIBAR + 4,33%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 3
JPMorgan Chase Bank – JHB Branch
12
3-month JIBAR + 4,365%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 4
JPMorgan Chase Bank – JHB Branch
6
3-month JIBAR + 4,360%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 5
JPMorgan Chase Bank – JHB Branch
17
3-month JIBAR + 4,31%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 6
JPMorgan Chase Bank – JHB Branch
16
3-month JIBAR + 4,30%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 7
JPMorgan Chase Bank – JHB Branch
17
3-month JIBAR + 4,295%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 8
JPMorgan Chase Bank – JHB Branch
14
3-month JIBAR + 4,17%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 9
JPMorgan Chase Bank – JHB Branch
14
3-month JIBAR + 4,25%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 10
JPMorgan Chase Bank – JHB Branch
24
3-month JIBAR + 4,07%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 11
JPMorgan Chase Bank – JHB Branch
7
3-month JIBAR + 4,01%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 12
JPMorgan Chase Bank – JHB Branch
17
3-month JIBAR + 3,97%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 13
JPMorgan Chase Bank – JHB Branch
11
3-month JIBAR + 4,01%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 14
JPMorgan Chase Bank – JHB Branch
23
3-month JIBAR + 3,84%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 15
JPMorgan Chase Bank – JHB Branch
9
3-month JIBAR + 3,84%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 16
JPMorgan Chase Bank – JHB Branch
11
3-month JIBAR + 3,96%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 17
JPMorgan Chase Bank – JHB Branch
6
3-month JIBAR + 3,995%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 18
JPMorgan Chase Bank – JHB Branch
16
3-month JIBAR + 4,00%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 19
JPMorgan Chase Bank – JHB Branch
8
3-month JIBAR + 3,94%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 20
JPMorgan Chase Bank – JHB Branch
19
3-month JIBAR + 3,88%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 21
JPMorgan Chase Bank – JHB Branch
12
3-month JIBAR + 3,89%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
14.Derivative financial assets and liabilities continued
The terms of the cross-currency interest rate swaps closely match those of the foreign currency-denominated borrowings they hedge
and were assessed as highly effective hedges. The amount of ineffectiveness recognised in profit and loss for the year with respect to
these hedges was a R97 million loss (2021: R146 million loss). The main source of hedge ineffectiveness in the hedging relationships
is the effect of the counterparty and the Group’s own credit risk on the fair value of the swaps, which is not reflected in the fair value of
the hedged items attributable to changes in the hedged risks. No other sources of ineffectiveness emerged from these hedging
relationships.
The amount recycled to profit and loss to offset the hedged risks was a R898 million loss (2021: R5 634 million gain), included in
finance costs.
The cash flows are projected to occur:
•
Semi–annually in July and January until July 2022 on both tranches of the TNUS22 bond hedge; and
•
Quarterly until June 2030 on the CDB hedge.
The fair values of the cross–currency interest rate swaps
at 31 March 2021 are as follows:
1 301
834
CDB
834
1 301
6 766
6 417
TNUS22
6 417
6 766
The nominal amounts of the cross–currency interest rate swaps
at 31 March 2021 are as follows:
28 185
26 506
South African Rand
26 506
28 185
1 909
1 811
United States Dollar
1 811
1 909
Day-one loss
900
796
Loss at the beginning of the year
796
900
(104)
(104)
Amortised to profit or loss
(104)
(104)
796
692
Loss at the end of the year
692
796
The unamortised day-one loss is included within the long-term
financial assets.
15. Long-term loans and advances
Loan 22
JPMorgan Chase Bank – JHB Branch
16
3-month JIBAR + 3,89%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 23
JPMorgan Chase Bank – JHB Branch
16
3-month JIBAR + 3,88%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 24
JPMorgan Chase Bank – JHB Branch
15
3-month JIBAR + 3,91%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 25
JPMorgan Chase Bank – JHB Branch
15
3-month JIBAR + 3,86%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 26
JPMorgan Chase Bank – JHB Branch
11
3-month JIBAR + 3,94%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 27
JPMorgan Chase Bank – JHB Branch
5
3-month JIBAR + 3,87%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 28
JPMorgan Chase Bank – JHB Branch
14
3-month JIBAR + 3,82%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 29
JPMorgan Chase Bank – JHB Branch
24
3-month JIBAR + 3,775%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
—
—
—
—
—
—
—
—
477
464
(477)(464)
Carrying value at the beginning of the
year Impairment (refer note 4.2.1)
Comprising:
Other loans and advances*
Gross carrying value
Impairment
—
—
—
—
—
—
—
—
464
477
(477) (464)
Loan 30
JPMorgan Chase Bank – JHB Branch
26
3-month JIBAR + 3,78%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 31
JPMorgan Chase Bank – JHB Branch
12
3-month JIBAR + 3,79%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 32
JPMorgan Chase Bank – JHB Branch
4
3-month JIBAR + 3,80%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 33
JPMorgan Chase Bank – JHB Branch
8
3-month JIBAR + 3,78%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 34
JPMorgan Chase Bank – JHB Branch
17
3-month JIBAR + 3,71%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 35
JPMorgan Chase Bank – JHB Branch
4
3-month JIBAR + 3,72%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 36
JPMorgan Chase Bank – JHB Branch
16
3-month JIBAR + 3,79%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 37
JPMorgan Chase Bank – JHB Branch
15
3-month JIBAR + 3,85%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 38
JPMorgan Chase Bank – JHB Branch
8
3-month JIBAR + 3,84%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 39
JPMorgan Chase Bank – JHB Branch
7
3-month JIBAR + 3,82%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 40
JPMorgan Chase Bank – JHB Branch
36
3-month JIBAR + 3,66%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 41
JPMorgan Chase Bank – JHB Branch
10
3-month JIBAR + 3,56%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Total exposure
1 809
*
Other loans and advances are measured at amortised cost, comprised of a loan to South African Express Airways SOC Ltd of which the full balance of
R260 million was provided for as irrecoverable in the 2021 financial year and FNB housing loans of which the full balance of R204 million (2021: R217 million)
was provided for as irrecoverable.
7677
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
16.1 Long-term investments and long-term financial assets
1 349
1 394
Held at amortised cost1
946
968
195
220
220
195
1 544
1 614
1 166
1 163
16.2 Short-term investments
Short-term portion of other financial assets including resale
248
61
agreements
61
248
248
61
61
248
16.3 Other non-current liabilities
3 424
3 371
Security of supply petroleum levy
3 371
3 424
248
358
Other3
358
248
3 672
3 729
3 729
3 672
1
The directors estimate that the carrying amount of financial assets held at
amortised cost approximate their fair value. Includes unamortised day-one
loss and lease smoothing assets.
2
Freight Dynamics Guardrisk insurance cell captive held for insurance
purposes for Freight Rail customers.
3
Other financial liabilities relate mainly to warranty provisions for the
locomotive build programmes.
17. Inventory
At weighted average cost
2 980
3 334
Maintenance material
3 334
2 980
555
677
Consumables
677
555
118
29
Work-in-progress1
29
118
(319)
(425)
Provision for stock obsolescence2
(425)
(319)
3 334
3 615
3 615
3 334
1
Included in work in progress are costs for contract assets (refer note 27).
2
The increase in the provision for stock obsolescence is due to slow moving
items assessed at the end of the current financial year. No items of inventory
have been pledged as security at 31 March 2022 (2021: nil).
The cost of inventory used during the period of R803 million (2021:
R425 million) and the increase in the provision for obsolescence of
R106 million (2021: R11 million) are recognised in operating expenses
(refer note 2 – material costs).
18. Trade and other receivables
7 048
6 092
Trade receivables – net of allowances for credit losses
6 092
7 048
10 681
10 626
Trade receivables1
10 626
10 681
(3 633)
(4 534)
Less: Allowance for expected credit losses
(4 534)
(3 633)
Prepayments and other amounts receivable – net of allowances
1 800
1 800
1 710
for credit losses2
1 724
2 269
2 256
Prepayments and other amounts receivable
2 270
2 269
(469)
(546)
Less: Allowance for expected credit losses
(546)
(469)
2
—
Short-term portion of loans and advances
—
2
8 850
7 802
7 816
8 850
Total allowance for expected credit losses
(3 215)
(4 102)
Opening balance
(4 102)
(3 215)
(1 566)
(1 903)
Raised
(1 903)
(1 566)
679
925
Utilised
925
679
(4 102)
(5 080)
Closing balance
(5 080)
(4 102)
Allowance for expected credit losses on trade receivables from
(3 633)
(4 534)
contracts with customers
(4 534)
(3 633)
(469)
(546)
Allowance for expected credit losses on other receivables
(546)
(469)
(4 102)
(5 080)
Total allowance for expected credit losses
(5 080)
(4 102)
1
Trade receivables include an amount of R3,8 billion (2021: nil) relating to
receivables which were discounted under a full recourse arrangement with a
financial institution and did not meet the derecognition criteria in IFRS 9.
The corresponding liability was included in trade payables, accruals and
contract liabilities (note 28).
2
Other amounts receivable consist mainly of receivables relating to other
income and straight-lining of lease debtors.
19. Cash and cash equivalents
769
3 467
Bank balances*
3 925
1 167
1
11
Cash
11
1
770
3 478
3 936
1 168
*
Included in bank balances are restricted TPL Rehabilitation Trust accounts
amounting to R457 million (2021: R398 million).
7879
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
Non-current assets classified as held-for-sale
229
229
257
Property, plant and equipment1
257
Net carrying value at the beginning of the year
216
229
229
216
(3)
(37)
Disposals
(37)
(3)
16
65
Transferred from property, plant and equipment (refer note 9)
65
16
Investment property2
9
9
9
9
Fair value at the beginning of the year
9
9
9
9
Other investments3
38
41
41
38
Balance at the beginning of the year
49
38
38
49
(11)
3
Fair value movement during the year
3
(11)
Total assets transferred to non-current assets classified as
276
307
held-for-sale
307
276
1
Property, plant and equipment classified as held-for-sale mainly relate to
rolling stock and containers that are damaged, obsolete or no longer in use.
These assets will be disposed of through the Transnet procurement policy via
the reverse logistics process and auctioneers and is expected to be disposed
of by 31 March 2023.
2
Transnet is currently disposing of property that is classified as non-core, and hence
is no longer required for mainline business, and is expected to be disposed of by 31
March 2023. The fair value measurements are categorised as level 3.
3
Equity investment in Rumo Logistica Operadora Multi-model S.A. (Rumo), a
Brazilian registered Company, and is expected to be disposed of by 31 March
2023 after the related administrative processes are resolved. The investment,
previously accounted for as available-for-sale, was designated as at FVTOCI
on initial application of IFRS 9. The fair value measurement is categorised as
level 1 – refer note 36 for more detail.
21.
Issued capital
Authorised
30 000
30 000
30 000 000 000 ordinary par value shares of R1 each
30 000
30 000
Issued
12 661
12 661
12 660 986 310 ordinary par value shares of R1 each
12 661
12 661
The unissued share capital is under the control of the South African Government, the sole shareholder of the Company. The issued capital
is fully paid.
Capital management
The Board’s policy is to maintain a strong capital base to maintain investor, creditor and market confidence to support future growth of the
business. Capital efficiency is measured in terms of returns on equity and the asset base, as well as the gearing ratio, which is monitored by the
Board. The capital structure of the Group consists of equity attributable to the equity holder, the South African Government, comprising issued
capital, non-distributable reserves and retained earnings as disclosed in notes 21 and 22. Other than loan covenants, Transnet SOC Ltd is not
subject to any other externally imposed capital requirements.
Based on the significant capital investment plan of the Company, as well as its revenue generating ability, the target debt to equity ratio will
remain below the 50% limit that forms part of the Shareholder’s Compact with the Shareholder Representative (2022: actual 45,5%).
50 753
61 384
7 048
7 804
7 599
7 048
(257)
905
— —
(294)
(149)
56 403
60 457
45 958
56 403
10 472
4 092
(27)
(179)
— 141
4 734
11 371
6 057
4 734
(1 318)
6 643
(5)
(6)
2 378
4 378
2 363
2 378
15
2 000
(19 810)
(22 626)
21
24
28
31
39 28
(11) 3
— —
—
—
—
—
—
—
(7)
(7)
2 490
2 590
3 465
3 548
3 515
3 465
(50)
83
(975)
(958)
22. Reserves
Revaluation reserve1
Revaluation of pipeline networks
Balance at the beginning of the year
Revaluation/(devaluation) during the year
Transfer to retained earnings
Decommissioning restoration liability adjustment
Revaluation of port facilities
Balance at the beginning of the year
Revaluation during the year
Transfer to retained earnings
Decommissioning restoration liability adjustment
Revaluation of rail infrastructure
Balance at the beginning of the year
Revaluation/(devaluation) during the year
Transfer to retained earnings
Revaluation of land, buildings and structures
Balance at the beginning of the year
Fair value movement during the year
Deferred tax impact of items relating to revaluation
reserves Revaluation to fair value2
Equity investment (Rumo Ltd) – revaluation to market value
Balance at the beginning of the year
Fair value movement during the year
Debt investment – revaluation to market value
Balance at the beginning of the year
Fair value movement during the year
Reclassification to profit or loss (refer note 5)
Deferred taxation impact of items relating to revaluation reserves
Actuarial gains on post-retirement benefit obligations3
Gross actuarial gains on post-retirement benefit obligations
Balance at the beginning of the year
Gains/(loss) arising during the year
Deferred tax impact of net actuarial gains
61 384
50 753
7 804
7 048
7 048
7 599
905
(257)
— —
(149)
(294)
60 457
56 403
56 403
45 958
4 092
10 472
(179)
(27)
141 —
11 371
4 734
4 734
6 057
6 643
(1 318)
(6)
(5)
4 378
2 378
2 378
2 363
2 000
15
(22 626)
(19 810)
24
19
31
28
28
39
3
(11)
— (5)
(5)
(39)
5
12
— 22
(7)
(4)
2 590
2 490
3 548
3 465
3 465
3 515
83
(50)
(958)
(975)
There were no changes to the capital management approach during the financial year.
1
The revaluation reserve relates to the revaluation of property, plant and equipment in accordance with IAS 16.
2
Revaluation to fair value comprises the cumulative net change in the fair value of equity securities designated at FVOCI and the cumulative net change in
fair value of debt securities at FVOCI until the related assets are derecognised or reclassified. This amount is reduced by the amount of estimated credit loss
allowance.
3
The actuarial gains or losses on post-retirement benefit obligations comprises re-measurements of the net defined benefit liability/(asset) which are recognised in
other comprehensive income in accordance with IAS 19 Employee Benefits; including actuarial gains or losses, return on plan assets and any changes in the
effect of the asset ceiling.
8081
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
(571)
(583)
(583)
(571)
(816)
(821)
Gross cash flow hedging reserve
(821)
(816)
(719)
(816)
Balance at the beginning of the year
(816)
(719)
(6 003)
(61)
Losses arising during the year
(61)
(6 003)
5 906
56
Transfer to foreign exchange differences
56
5 906
Deferred taxation impact of items relating to cash flow hedging
245
238
reserve
238
245
250
250
249
249
250
250
Share of pension fund surplus
249
249
62 084
67 324
Retained earnings
67 453
62 220
70 775
62 084
Balance at the beginning of the year
62 220
70 922
32
185
Transfers into retained earnings
185
32
(8 723)
5 055
Profit/(loss) for the year attributable to the equity holder
5 048
(8 734)
115 027
130 989
131 117
115 160
1 The cash flow hedging reserve comprises the effective portion of the
cumulative net change in the fair value of hedging instruments used in cash
flow hedges pending subsequent recognition of the amounts in profit or loss or
direct inclusion in the initial cost or other carrying amount of a non-financial
asset or non-financial liability.
2 Share of pension fund surplus retained for application against pensioner
related claims.
878
776
Post-retirement benefit obligations
776
878
855
878
Balance at the beginning of the year
878
855
116
101
Income statement charge
101
116
(143)
(120)
Settlements during the year
(120)
(143)
50
(83)
Actuarial gains
(83)
50
Comprising:
—
—
Transport Pension Fund: Transnet Sub-fund (refer note 32.1.2)
—
—
—
—
Transnet Second Defined Benefit Fund (refer note 32.1.3)
—
—
54
53
Transnet Top Management Pension (refer note 32.1.4)
53
54
368
355
Transnet Workmen's Compensation Act pensioners (refer note 32.1.5)
355
368
Transnet SATS Pensioners' post-retirement medical benefits (refer
235
193
note 32.2.1)
193
235
Transnet employees post-retirement medical benefits (refer note
221
175
32.2.2)
175
221
878
776
776
878
23. Employee benefits continued
Various assumptions have been applied by management and actuaries
in the calculation of post-retirement benefit obligations.
The assumptions and their sensitivities are disclosed in note 32.
—
—
Other post-retirement and medical benefits
—
—
120
65
Balance at the beginning of the year
65
120
86
89
Income statement movement
89
86
(141)
(74)
Utilised during the year
(74)
(141)
65
80
80
65
(65)
(80)
Less: Short-term portion classified as current liabilities
(80)
(65)
—
—
Leave pay
—
—
2 293
2 621
Balance at the beginning of the year
2 621
2 293
1 904
431
Accruals recognised during the year
431
1 904
(1 576)
(633)
Utilised during the year
(633)
(1 576)
2 621
2 419
2 419
2 621
(2 621)
(2 419)
Less: Short-term portion classified as current liabilities
(2 419)
(2 621)
—
—
Incentive bonuses
—
—
563
109
Balance at the beginning of the year
109
563
5
297
Accruals recognised during the year
297
5
(343)
(271)
Utilised during the year
(271)
(343)
(116)
(108)
Reversal during the year
(108)
(116)
109
27
27
109
(109)
(27)
Less: Short-term portion classified as current liabilities
(27)
(109)
878
776
Total employee benefits
776
878
Other post-retirement and medical benefits
Relates to payments made for SATS pensioners medical expenses.
Leave pay
Relates to accrual for unutilised leave at year-end. The leave is
expected to be taken over the next two financial years and is
calculated based on employee total cost to Company.
Incentive bonuses
Accrual for incentive bonuses in terms of the incentive bonus scheme
and ex-gratia incentives.
8283
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
24. Long-term borrowings (refer note 36)
77 626
92 301
92 301
77 626
115 821
77 626
Total long-term borrowings at the beginning of the year
77 626
115 821
13 396
9 959
Recognised in the reporting period
9 959
13 396
(5 627)
(125)
Foreign exchange differences
(125)
(5 627)
58
56
Amortisation of discount
56
58
Current portion of long-term borrowings redeemable within one year
(46 022)
4 785
transferred to short-term borrowings* (refer note 29)
4 785
(46 022)
Made up as follows:
Unsecured liabilities
58 224
77 534
Rand-denominated
77 534
58 224
39 665
44 504
Bonds at nominal value
44 504
39 665
(878)
(894)
Unamortised discounts
(894)
(878)
38 787
43 610
Bonds at carrying value1
43 610
38 787
19 437
33 924
Other unsecured liabilities2
33 924
19 437
14 735
—
—
14 735
14 762
—
Bonds at nominal value
—
14 762
(27)
—
Unamortised discounts
—
(27)
14 735
—
Bonds at carrying value
—
14 735
4 667
14 767
14 767
4 667
4 667
4 477
Rand-denominated**
4 477
4 667
—
10 290
Foreign currency-denominated6
10 290
—
77 626
92 301
Total long-term borrowings
92 301
77 626
*
Includes the impact of loan covenant breaches relating to the Moody’s downgrade during the prior financial year and the cash interest cover breach as at the
31 March 2021, which resulted in affected loans of R30,7 billion in long-term borrowings being reclassified to short-term borrowings in the prior reporting
period. Transnet successfully secured waivers from all the lenders affected by the covenant breaches as reported in the prior financial year.
**
Includes lease liabilities of R 1 575 million (2021: R1 198 million).
1
Rand denominated domestic bonds bear interest between 5,230% and 11,35% and are repayable over periods between the 2024 and 2041 financial years.
Rand denominated Eurorand bonds bear interest between 10,0% and 13,5% and are repayable in 2028 and 2029 (refer note 36).
2
Rand denominated unsecured domestic loans are repayable over periods between 5 October 2023 and 1 February 2036, and bears interest at rates ranging
between 5,349% and 11,8%.
3
Foreign currency bonds in the prior year are denominated in United States Dollar, is redeemable on 26 July 2022, and bears interest at a rate of 4,0%.
4
Rand denominated secured loans are repayable over periods between 15 September 2023 and 17 September 2029 and bear interest at rates ranging between
7,95% and 10,37%.
5
Rand denominated lease liabilities bear interest at rates ranging between 4,46% and 12,99% with all rates fixed. These liabilities are repayable over
periods between 2024 and 2030 financial years.
6
Foreign currency secured loans are denominated in United States Dollar, bear interest at 3,37286% and are repayable on 12 June 2030.
25. Provisions
9 597
10 007
Comprising:
10 007
9 597
3 654
9 597
Long-term provisions at the beginning of the year
9 597
3 654
9 147
3 670
Provisions recognised during the year and unwinding of discounts
3 670
9 147
(3 420)
(3 052)
Provisions utilised
(3 052)
(3 420)
Increase/(decrease) in short-term provisions classified as
216
(208)
current liabilities
(208)
216
4 358
4 803
Third-party claims
4 803
4 358
402
4 358
Balance at the beginning of the year
4 358
402
5 127
1 603
Provisions recognised during the year
1 603
5 127
(1 171)
(1 158)
Utilised during the year
(1 158)
(1 171)
85
93
Customer claims
93
85
172
85
Balance at the beginning of the year
85
172
—
446
Provisions recognised during the year
446
—
(87)
(438)
Utilised during the year
(438)
(87)
2 184
2 311
Decommissioning liabilities
2 311
2 184
1 479
2 184
Balance at the beginning of the year
2 184
1 479
603
28
Provisions recognised during the year
28
603
141
198
Unwinding of discounts
198
141
(39)
(99)
Utilised during the year
(99)
(39)
3 706
3 784
Environmental liabilities
3 784
3 706
2 520
3 706
Balance at the beginning of the year
3 706
2 520
1 775
1 251
Provisions recognised during the year
1 251
1 775
17
77
Unwinding of discounts
77
17
(606)
(1 250)
Utilised during the year
(1 250)
(606)
24
—
Restructuring
—
24
24
24
Balance at the beginning of the year
24
24
—
(24)
Utilised during the year
(24)
—
31
15
Other*
15
31
64
31
Balance at the beginning of the year
31
64
1 484
67
Provisions recognised during the year
67
1 484
(1 517)
(83)
Utilised during the year
(83)
(1 517)
10 388
11 006
Total provisions
11 006
10 388
791
999
Less: Short-term provisions classified as current liabilities
999
791
295
301
Third-party claims
301
295
85
93
Customer claims
93
85
381
591
Environmental liabilities
591
381
30
14
Other*
14
30
9 597
10 007
Long-term provisions
10 007
9 597
* Other provisions include uniform and clothing, repairs and maintenance and cleaning related provisions.
8485
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
25.Provisions continued
Third-party claims
The provision represents the best estimate of amounts required to settle known third-party legal claims, excluding customer claims.
These claims are expected to be paid within one to five years of the reporting date.
Customer claims
Provision for claims made by customers arising from non-performance on contracts or damage to goods in transit. These claims are
expected to be paid within 12 months of the reporting date.
Decommissioning and environmental liabilities
The decommissioning provision arises for the Group’s obligation for the dismantling and removal of an asset and to restore the site on
which the asset is located. The provision for environmental rehabilitation is based on the estimated rehabilitation costs for quarries and
historical contamination of land caused by asbestos, ferromanganese, manganese, mixed soil (including chrome, sulphur and
manganese), fuel, rubble and ballast. The provisions are determined based on risk assessments on identified areas of contamination
and are expected to be settled within 1 – 68 years. The provisions were computed by discounting the future cash flows required to
settle the obligation at discount rates between 5,0% and 12,2%.
Restructuring
Provision for restructuring costs in terms of strategic plans. This provision has been utilised at the reporting date.
41 459
44 700
Comprising:
44 680
41 440
41 617
41 459
Opening balance
41 440
41 572
(2 556)
435
Income statement charge (refer note 8)
431
(2 544)
2 398
2 806
Raised in other comprehensive income (refer note 8.1)
2 809
2 412
Analysis of major categories of temporary differences
20 388
20 407
21 641
Deferred tax assets
21 661
2 957
3 028
Provisions
3 028
2 957
1 264
1 086
Employee benefit obligations
1 086
1 264
1 525
1 315
Revenue received in advance and deferred income
1 315
1 525
469
561
Capitalised lease liability
561
469
1 008
1 149
Doubtful debts
1 149
1 008
222
125
Cross-currency swaps
125
222
12 838
14 223
Estimated tax loss
14 223
12 838
105
154
Other
174
124
61 847
66 341
Deferred tax liabilities
66 341
61 847
180
208
Deferred expenditure
208
180
61 473
65 931
Property, plant and equipment
65 931
61 473
194
202
Future expenditure allowance
202
194
41 459
44 700
Net deferred tax liability
44 680
41 440
The deferred tax liability increased from the prior year. The increase was mainly as a result of the deferred tax impact on the revaluation of
property, plant and equipment which has been recorded directly in equity. This was partially offset by the impact of the reduction of the
corporate tax rate from 28% to 27% which was substantively enacted in the Minister of Finance’s 2021/22 Budget Speech, resulting in a
decrease in the provision of deferred tax for reserves in equity (revaluation of property, plant and equipment, equity investment, post-
retirement benefit obligations and cash flow hedges).
27. Contract assets and contract liabilities
Contract assets
Contracts in progress at the statement of financial position date:
94
37
Engineering
37
94
540
614
Ports
614
540
634
651
651
634
—
—
Less allowance for expected credit losses
—
—
634
651
651
634
Contract assets relate to the Group’s rights to consideration in
respect of:
Engineering – revenue accrued in respect of work completed on
engineering contracts but not yet billed at year-end, including
retention debtors.
Ports – revenue accrued in respect of work on cargo and vessels at
the ports but not yet invoiced at year-end.
Contract assets are reclassified to trade receivables when the rights
become unconditional and the customer is invoiced.
1 817
1 259
Contract liabilities
1 259
1 817
Contract liabilities primarily relate to: (i) consideration received
in advance from customers, including cash customers, which is
recognised as revenue in future periods upon satisfaction of the
related performance obligations, and (ii) accrual for shortfalls in
crude oil delivered to customers in the last few days before year-end,
compared to intake volumes.
Contract liabilities are generally recognised in revenue within
12 months after the reporting date.
28. Trade payables and accruals
2 892
2 789
Trade payables
2 789
2 894
13 571
17 153
Accruals
17 156
13 571
6 719
11 262
Accrued expenditure
11 265
6 719
198
174
Deposits received
174
198
2 086
1 981
Accrued interest
1 981
2 086
1 053
653
Personnel costs
653
1 053
65
80
Other post-retirement and medical benefits (refer note 23)
80
65
2 621
2 419
Leave pay (refer note 23)
2 419
2 621
109
27
Incentive bonus (refer note 23)
27
109
18
15
SARS – withholding tax
15
18
702
542
SARS – value-added tax
542
702
16 463
19 942
19 945
16 465
8687
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
17 577
51 515
Total short-term borrowings at the beginning of the year
51 515
17 577
6 159
9 964
Recognised in the reporting period
9 964
6 159
(17 932)
(20 062)
Repayments in the reporting period
(20 062)
(17 932)
(299)
(101)
Foreign exchange movement
(101)
(299)
(12)
6
Amortisation of discount
6
(12)
Current portion of long-term interest-bearing borrowings1
46 022
(4 785)
(refer note 24)
(4 785)
46 022
51 515
36 537
36 537
51 515
Short-term borrowings relate to the market-making portfolio
and comprise the Group’s position on bonds and other financial
instruments, net of related repayments.
Short-term borrowings includes lease liabilities of R503 million
(2021: R477 million) and foreign currency bonds denominated in United
States Dollar of R14 628 million, is redeemable on 26 July 2022, and
bears interest at a rate of 4,0%.
The short-term borrowings bear interest at rates between 9,94% and
11,8%, is repayable between April 2022 and March 2023 and are not
guaranteed.
1 Includes the impact of loan covenant breaches relating to the Moody's
downgrade during the prior financial year and the cash interest cover breach
as at the 31 March 2021, which resulted in affected loans of R30,7 billion in
long-term borrowings being reclassified to short-term borrowings in the prior
reporting period. Transnet successfully secured waivers from all the lenders
affected by the covenant breaches as reported in the prior financial year.
89
44
Contracted for in US Dollars
44
89
122
29
Contracted for in Euros
29
122
8 630
2 525
Contracted for in SA Rands
2 525
8 630
8 841
2 598
Total capital commitments contracted for
2 598
8 841
Property, plant and equipment
8 841
2 597
2 597
8 841
—
1
Intangible assets
1
—
Total capital commitments contracted for are expected to be
incurred as follows:
4 367
1 935
Within one year
1 935
4 367
4 474
663
After one year, but not more than five years
663
4 474
8 841
2 598
Total capital commitments contracted for
2 598
8 841
* Capital commitments contracted for are commitments under binding contracts
with third parties for the acquisition of property, plant and equipment and
intangible asssets.
The Group as lessee
637
673
Less than one year
673
637
1 514
1 804
One to five years
1 804
1 514
88
45
More than five years
45
88
2 239
2 522
Total undiscounted lease liabilities
2 522
2 239
(564)
(444)
Less: Amount representing finance charges
(444)
(564)
1 675
2 078
Lease liabilities
2 078
1 675
477
503
Short-term lease liabilities
503
477
1 198
1 575
Long-term lease liabilities
1 575
1 198
Total cash payments made by the Group for leases during the financial year amounted to R599 million (2021: R659 million), including
repayment of capital on lease liabilities, interest payments, variable lease payments not included in the measurement of the lease liability, as
well as payments made under short-term leases and leases of low-value assets.
The Group leases land and buildings for its office space. The leases of land and buildings typically run for periods of one to ten years. The
Group leases motor vehicles and equipment, with average lease terms of one to five years. In some cases the Group has options to purchase
the assets at the end of the lease term, or guarantees the residual value of leased assets at the end of the lease term. As at 31 March 2022,
the Group did not expect any material payments under these options and guarantees which are not already included in the lease liability. The
Group also leases IT equipment with average contract terms of three years. The majority of these leases have been classified as leases of low-
value assets. The Group has elected not to recognise right-of-use assets and lease liabilities for these leases.
88
Variable lease payments
The motor vehicle leases include variable lease payments that do not
depend on an index or a rate, and are excluded from the measurement
of the lease liability (e.g. excess kilometres travelled, tyres, e-toll
fees, traffic fines, etc). The amount of variable lease payments made
during the year is disclosed in note 4.1. The Group does not expect
future variable lease payments to differ significantly from the amount
recognised during the financial year.
The Group as lessor
Lease income receivable
The Group leases out its investment properties, namely land and
buildings, under short-term leases with an annual escalation varying
from 7,0% to 14,0%. The Group has classified these leases as
operating leases, as they do not transfer substantially all of the risks
and rewards incidental to ownership of the leased assets.
Future minimum rentals under operating leases are as follows:
2 143
1 703
Less than one year
1 703
2 143
2 326
1 737
More than one year but less than two years
1 737
2 326
2 358
1 164
More than two years but less than three years
1 164
2 358
2 433
1 004
More than three years but less than four years
1 004
2 433
2 353
798
More than four years but less than five years
798
2 353
15 455
4 782
More than five years
4 782
15 455
27 068
11 188
11 188
27 068
The Group manages the risks associated with the rights it retains
in the underlying leased assets. Lessees are prohibited from selling
or pledging the underlying assets as security. The Group generally
imposes a restriction that, unless there is a contractual right for the
lessee to sublet the asset to another party, the leased asset can only
be used by the lessee. Leases are either non-cancellable or may only
be cancelled by mutual agreement which will normally require
payment of a cancellation fee.
Lessees are required to keep leased properties in a good state of
repair and return the properties in their original condition at the end
of the lease, subject to normal wear and tear. The Group also requires
upfront deposits from tenants, depending on their credit assessment,
to help mitigate any credit risk associated with the lease.
The Group as lessor is responsible for structural repairs to leased
property.
31. Contingent liabilities, assets and guarantees
Various contingent liabilities1 where no material losses are expected
to materialise:
5 728
Third-party claims
5 728
Various contingent assets2 where the inflow of economic benefits is
probable, but not virtually certain:
2 819
Insurance claims
2 819
122
Legal claims against third-parties
122
2 941
2 941
1
Includes a claim in which the owners and underwriters of a plaintiff issued summons against Transnet for loss of a vessel and damages arising from
alleged breaches of legal and statutory duties imposed upon Transnet, as well as alleged breaches of legal duties owed by Transnet to the plaintiff in the
circumstances. The summons relates to the loss of the vessel and cargo. Transnet continues to defend all claims.
2
Contingent assets relate mainly to various legal claims by the Group against third parties with majority of the contingent assets relating to insurance cover.
89
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
32.
Post-retirement benefit obligations
The Group offers pension benefits through two defined benefit pension funds and one defined contribution fund. The Group also
offers post-retirement medical benefits to its employees. Specific retirement benefits are offered to top management and under
the Workmen’s Compensation Act. The following sections summarise the relevant components of the pension benefits and post-
retirement medical benefits. (Unless otherwise stated, all amounts disclosed are the same for both Company and Group).
32.1Pension benefits
Transnet has three pension funds, namely the Transnet Retirement Fund, Transport Pension Fund and Transnet Second Defined
Benefit Fund. Except for the Transnet Retirement Fund, actuarial valuations are performed annually in accordance with IAS 19
Employee Benefits. The Transnet Pension Funds are governed by the Transnet Pension Fund Act, No. 62 of 1990, as amended.
32.1.1Transnet Retirement Fund
The fund is structured as a defined contribution fund and all employees of the Group are eligible members of the fund. There were
50 951 members at 31 March 2022 (2021: 50 884). Actuarial valuations are performed regularly to determine the financial position of
the fund. The last actuarial valuation was performed as at 31 March 2021 and the actuaries were satisfied with the status of the
member's credit account as at that date. The total contributions for the year constitute member contributions of R1 413 million (2021:
R1 523 million) and employer contributions of R2 223 million (2021: R2 392 million).
32.1.2Transport Pension Fund: Transnet Sub-fund
The fund is a defined benefit pension fund which has been closed to new members since 1 December 2000. Benefits are based on
the final salary with a guarantee by the employer. Members are current employees of Transnet who elected to remain as members of
the fund at 1 November 2000 and pensioner members who retired subsequent to that date. The pension obligation is fully funded and
the plan is currently in a net asset (surplus) position. The Board of Trustees is responsible for the management of the fund, the
investment strategy and administration of benefits.
Members of the fund are entitled to minimum benefits as per the Pensions Fund Second Amendment Act, 2001, as set out in Section
14A of the Act. This minimum benefit is defined in Section 14B (2)(a) of the Act as the fair value equivalent of the present value of the
member’s accrued deferred pension calculated at a prescribed rate of discount.
The Transnet Pension Fund Amendment Act, promulgated in 2007, changed the name of the fund with effect from 11 November 2005
to the Transport Pension Fund. The Act restructured the Transport Pension Fund (formerly the Transnet Pension Fund) into a multi-
employer pension fund. From the date the Act came into operation, all existing members, pensioners, dependant pensioners,
liabilities, assets, rights and obligations, of the Transport Pension Fund, were attributed to three Sub-funds, with Transnet as the
principal employer for one of the Sub-funds. In terms of the amendments to the Act, a Sub-fund in the name of South African Airways
(Pty) Ltd was also established as at 1 April 2006, with South African Airways (Pty) Limited as the principal employer of that Sub-fund,
and a further Sub-fund in the name of the South African Rail Commuter Corporation Ltd (now Passenger Rail Agency of South Africa)
was established with effect from 1 May 2006, with the South African Rail Commuter Corporation Ltd as the principal employer of that
Sub-fund.
All active members and pensioner members belonging to South African Airways (Pty) Ltd and the South African Rail Commuter
Corporation Ltd were assigned to the new Sub-funds. The Transport Pension Fund therefore comprises three independent and
separate Sub-funds, each with their own principal employer. An employer’s liability to the Transport Pension Fund is limited to those
attributable to its members, pensioners and dependent pensioners assigned to its Sub-fund.
There were 3 997 members and pensioners at 31 March 2022 (2021: 4 138). The fund gives members the option to transfer to the
Transnet Retirement Fund twice a year. Altogether, no members opted to transfer to the Transnet Retirement Fund in the current year
(2021: nil). The effect of the transfers is included under benefits paid in the reconciliations below.
The duration of the defined benefit obligation is estimated, based on the current membership profile, to be 6 years.
Company and Group
An actuarial valuation was performed as at 31 March 2022 based on the projected unit credit method.
The principal actuarial assumptions used are as follows:
Discount rate (%)
10,13
10,53
Inflation rate (%)
6,78
7,31
Salary increase rate (%)
7,78
8,31
Pension increase rate (%)
4,75
5,12
The results of the actuarial valuation are as follows:
Present value of obligation
(2 922)
(2 998)
Fair value of plan assets
4 303
4 184
Surplus
1 381
1 186
Unrecognised asset
(1 381)
(1 186)
Net asset/(liability) recognised in the statement of financial position
—
—
The liability recognised for this fund relating to the Company amounts to nil (2021: nil).
The surplus was not recognised as the rules of the fund do not provide for the surpluses to be
distributed.
Service cost
(11)
(18)
Net interest income
125
56
114
38
Less: Interest on asset limit
(125)
(56)
(11)
(18)
Actual return on plan assets
465
1 166
Total measurements recognised in other comprehensive income for the year
8
14
– net actuarial gain/(loss)
78
665
– interest on asset limit
125
56
– asset not recognised
(195)
(707)
Opening net asset
1 186
479
Net expense as above
(11)
(18)
Remeasurements – actuarial gain/(loss)
78
665
– interest on asset limit
125
56
Contributions paid by employer
3
4
Closing net asset
1 381
1 186
Asset not recognised
(1 381)
(1 186)
Net asset/(liability) recognised in the statement of financial position
—
—
9091
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
32.
Post-retirement benefit obligations continued
Company and Group
32.Post-retirement benefit obligations continued
32.1.2Transport Pension Fund: Transnet Sub-fund continued
Reconciliation of movement in benefit liability
Opening benefit liability
Service cost
Contributions by members
Interest cost
Actuarial gain/(loss)
– change in economic assumptions
– experience adjustments
Benefits paid
Bonus award paid to pensioners
Transfer to the retirement fund
Closing benefit liability
(2 998)(2 850)
(11)
(18)
(2)
(3)
(299)
(317)
36
(127)
(10)
(191)
46
64
315
276
37
41
(2 922)
(2 998)
—
—
(2 922)
(2 998)
The fund was established on 1 November 2000 for the benefit of existing retired members and
qualifying beneficiaries. The fund includes the spouses of black pensioners who retired from Transnet
between 16 December 1974 and 1 April 1986. The pension fund is a final salary defined benefit
plan with a guarantee by the employer, including a spouses' death benefit of 70% of final pension.
The pension obligation is fully funded, and the plan is currently in a net asset (surplus) position
as disclosed below. The Board of Trustees is responsible for the management of the fund, the
investment strategy and administration of benefits.
There were 9 399 members at 31 March 2022 (2021: 10 972). This excludes widows and children
of pensioners. The all-inclusive membership is 37 506 at 31 March 2022 (2021: 40 875). The entire
obligation relates to Transnet SOC Ltd.
The duration of the defined benefit obligation is estimated, based on the current membership
profile, to be 5,4 years.
An actuarial valuation was performed at 31 March 2022 based on the projected unit credit method.
The principal actuarial assumptions used are as follows:
Discount rate (%)
9,94
9,86
Reconciliation of movement in fair value of plan assets
Opening fair value of plan assets
4 184
3 329
Interest income
424
373
Actuarial gain/(loss)
42
792
Contributions by employer and members
5
7
Benefits paid
(352)
(317)
4 303
4 184
Transfer to the retirement fund
—
—
Closing fair value of plan assets
4 303
4 184
The estimated contributions (based on current year contributions) by both employer and members for
the year beginning 1 April 2022 amount to R5 million (2021: R7 million). The employers contributions
are included in the budget for operating expenses.
Sensitivity analysis
Closing benefit liability based on changes in the discount rate:
9,13% (2021: 9,53%)
(3 114)
(3 198)
11,13% (2021: 11,53%)
(2 750)
(2 819)
Closing benefit liability based on changes in the inflation rate:
5,78% (2021: 6,31%)
(2 806)
(2 968)
7,78% (2021: 8,31%)
(3 046)
(3 027)
One hundred percent (100%) of the expected liability cash flows (allowing for expected pension
increases of 70% of CPI) are matched through the use of liquidity driven investment mandates with
three different investment managers and residual swap arrangements with ABSA and Standard Bank.
Domestic equities (%)
9,6
21,4
International equities (%)
10,3
25,5
Domestic bonds (%)
70,9
39,1
Commodities (%)
—
4,6
90,8
90,6
Domestic private equity (%)
0,5
0,5
Property (local) (%)
2,2
4,7
Derivatives (local) (%)
3,4
—
Cash and cash equivalents (%)
3,1
4,2
9,2
9,4
Total (%)
100,0
100,0
Inflation rate (%)
6,85
7,04
Pension increase allowance (%)
4,80
4,93
The results of the actuarial valuation are as follows:
Present value of obligation
(9 835)
(10 960)
Fair value of plan assets
13 848
14 335
Surplus
4 013
3 375
Unrecognised asset
(4 013)
(3 375)
Net asset/(liability) recognised in the statement of financial position
—
—
The surplus was not recognised as the rules of the fund do not provide for the surpluses
to be distributed.
Service cost
—
—
Net interest income
333
202
333
202
Less: Interest on asset limit
( 333)
(202)
—
—
Actual return on plan assets
1 383
2 993
Total measurements recognised in other comprehensive income for the year
—
—
– net actuarial gain/(loss)
305
1 270
– interest on asset limit
333
202
– net asset not recognised
(638)
(1 472)
Opening net asset
3 375
1 903
Profit or (loss) as above
—
—
Remeasurements – actuarial gain
305
1 270
– interest on asset limit
333
202
Closing net asset
4 013
3 375
Asset not recognised
(4 013)
(3 375)
Net asset/(liability) recognised in the statement of financial position
—
—
9293
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
32.
Post-retirement benefit obligations continued
32.
Post-retirement benefit obligations continued
32.1.4Top Management pensions
The Top Management Pensions are additional benefits to top up pensions received in order to eliminate the effects of any early
retirement and resignation penalties applied under the Group’s existing pension fund schemes to management appointed prior to
1 April 1999. The benefits are dependent on the contractual arrangement between the individual and Transnet. The benefits are
paid through the pension fund and recovered from Transnet.
32.1.3Transnet Second Defined Benefit Fund continued
Reconciliation of movement in benefit liability
Opening benefit liability
Interest cost
Actuarial gain/(loss)
– change in economic assumptions
– experience adjustments
Benefits paid
Closing benefit liability
(10 960)(11 320)
(988)
(1 128)
243
(346)
106
(602)
137
256
1 870
1 834
(9 835)
(10 960)
There were 307 members at 31 March 2022 (2021: 317). The entire obligation relates to Transnet SOC Ltd. The duration of the
defined benefit obligation is estimated, based on the current membership profile, to be 4,6 years. There are no plan assets to
fund these obligations.
An actuarial valuation was performed at 31 March 2022 to determine the present value of the obligation based on the projected
unit credit method.
The following summarises the components of expense and liability recognised in the financial statements together with the
assumptions adopted.
Company and Group
Reconciliation of movement in fair value of plan assets
Opening fair value of plan assets
14 335
13 223
Interest income
1 321
1 330
Actuarial gain
62
1 616
Benefits paid
(1 870)
(1 834)
Closing fair value of plan assets
13 848
14 335
The estimated contributions (based on current year contributions) by both employer and members
for the year beginning 1 April 2022 amount to nil (2021: nil). The employers contributions are
included in the budget for operating expenses.
Closing benefit liability based on changes in discount rate:
8,94% (2021: 8,86%)
(10 406)
(11 521)
10,94% (2021: 10,86%)
(9 324)
(10 451)
Closing benefit liability based on changes in the inflation rate:
5.85% (2021: 6.04%)
(9 508)
(10 565)
7.85% (2021: 8.04%)
(10 185)
(11 312)
Ninety eight (98%) of the liabilities are matched by assets, including swaps, bonds and cash. The Fund
has implemented specialist liability-driven investment mandates to manage the matching assets.
Domestic equities (%)
9,9
19,2
International equities (%)
6,3
—
Domestic bonds (%)
59,6
46,7
75,8
65,9
Domestic private equity (%)
1,9
2,3
Derivatives (local) (%)
3,7
6,6
Cash and cash equivalents (%)
18,6
25,2
24,2
34,1
Total (%)
100,0
100,0
* During the 2017 financial year the Group entered into interest-rate swaps with Transnet Second Defined Benefit Fund. Refer to note 14.
The principal assumptions in determining the benefits are as follows:
Discount rate (%)
9,78
8,19
Pension increase allowance (%)
2,00
2,00
Present value of obligations
53
54
Liability recognised in the statement of financial position
53
54
Interest cost
(4)
(5)
(4)
(5)
Actuarial loss recognised in other comprehensive income for the year
(3)
(7)
Opening benefit liability
(54)
(51)
Expense as above
(4)
(5)
Actuarial loss
(3)
(7)
– change in economic assumptions
4
(6)
– experience adjustments
(7)
(1)
Benefits paid
8
9
Benefit liability at year-end
(53)
(54)
The estimated contributions (based on current year contributions) for the year beginning
1 April 2022 amount to R8 million (2021: R9 million) and are included in the budget for operating
expenses.
Closing benefit liability based on changes in discount rate:
8,78% (2021: 7,19%)
(56)
(56)
10,78% (2021: 9,19%)
(51)
(51)
9495
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
The Workmen's Compensation Pension Fund Act benefits are provided in accordance with the
Workmen’s Compensation Act and relates to the pension benefits that the Company pays to current
and former employees who were disabled whilst in service prior to the corporatisation of Transnet in
1990. The benefits are paid through the pension fund and recovered from Transnet.
There were 756 members at 31 March 2022 (2021: 832). The duration of the defined benefit obligation
is estimated, based on the current membership profile, to be 7,16 years. There are no plan assets to
fund these obligations.
An actuarial valuation was performed at 31 March 2022 to determine the present value of the
obligation based on the projected unit credit method.
The following summarises the components of expense and liability recognised in the financial
statements together with the assumptions adopted.
The principal assumptions in determining the benefits are as follows:
Discount rate (%)
10,50
11,04
Pension increase (%)
6,67
7,08
Inflation rate (%)
6,67
7,08
Present value of obligations
(355)
(368)
Liability recognised in the statement of financial position
(355)
(368)
Interest cost
(39)
(41)
(39)
(41)
Actuarial gain/(loss) recognised in other comprehensive income for the year
15
(13)
32.
Post-retirement benefit obligations continued
32.2Post-retirement medical benefits
SATS pensioners’ post-retirement medical benefits
The SATS pensioners are the retired employees of the former South African Transport Services (SATS) and their dependants. The
liability is in respect of pensioners and their dependants who have elected to belong to the Transnet in-house medical scheme,
Transmed, whose membership is voluntary. Transnet subsidises the medical contribution costs at a flat contribution of R800 per
principal member per month. This fund is governed by the Medical Aid Scheme Act.
Transnet employees’ post-retirement medical benefits
This includes the current and past employees of Transnet who are members of Transnet accredited medical schemes, namely
Transnet’s in-house medical aid, Transmed Medical Fund, Bestmed, Bonitas, Discovery Health and Sizwe. Membership is voluntary.
The board of trustees of Transmed Medical Fund are responsible for the governance of the fund including monitoring the performance
of all contract service providers.
Transnet subsidises members at a flat contribution of R213 per month per member family.
This fund is governed by the Medical Aid Scheme Act.
To enable the Company to fully provide for such post-retirement medical liabilities, since April 2000, actuarial valuations are obtained
annually. There are no assets held to fund the obligation.
The duration of the post-retirement medical defined benefit obligations is estimated, based on the current membership profile, to be 5
years.
Analysis of benefit expense
The following summarises the components of the net benefit expense recognised in both the statement of comprehensive income
and statement of financial position as at 31 March 2022 for both SATS pensioners and Transnet employees. The projected unit credit
method has been used for the purposes of determining the actuarial valuation for both the funds.
Company and Group
Discount rate (%)
10,03
9,86
Reconciliation of movement in benefit liability
Opening benefit liability
Interest cost
Actuarial gain/(loss)
– change in economic assumptions
– experience adjustments
Benefits paid
Benefit liability at year-end
(368)
(359)
(39)
(41)
15
(13)
(7)
(31)
22
18
37
45
(355)
(368)
Present value of obligations
(193)
(235)
Liability recognised in the statement of financial position
(193)
(235)
Interest cost
(21)
(27)
(21)
(27)
Actuarial gain/(loss) recognised in other comprehensive income for the year
8
(14)
Opening benefit liability
(235)
(258)
The estimated contributions (based on current year contributions) for the year beginning 1 April 2022
amount to R37 million (2021: R45 million) and are included in the budget for operating expenses.
Sensitivity analysis
Closing benefit liability based on changes in discount rate:
9,50%
(2021: 10,04%)
(383)
(397)
11,50% (2021: 12,04%)
(331)
(343)
Closing benefit liability based on changes in the inflation rate:
5,67%
(2021: 6,08%)
(330)
(342)
7,67%
(2021: 8,08%)
(383)
(398)
32.1.6HIV/Aids benefits
Transnet Group offers certain assistance to employees diagnosed with Aids. The related data is not sufficient to actuarially value any
liability the Group may have in this regard.
Interest cost
(21)
(27)
Company contributions
55
64
Actuarial gain/(loss)
8
(14)
– change in economic assumptions
1
(15)
– experience adjustments
7
1
Closing benefit liability
( 193)
(235)
The estimated contributions (based on current year contributions) for the year beginning
1 April 2022 amount to R55 million (2021: R64 million) and are included in the budget for operating
expenses.
The medical inflation has no impact on the aggregate current service cost and interest cost and the
benefit liability. However, the assumed discount rate has an impact. The sensitivity of the obligation
to a change in the discount rate on the present value of the obligation is as follows:
Closing benefit liability based on changes in discount rate:
9,03% (2021: 8,86%)
(200)
(245)
11,03% (2021: 10,86%)
(186)
(226)
9697
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
Discount rate (%)
10,03
9,86
Present value of obligations
(175)
(221)
Liability recognised in the statement of financial position
(175)
(221)
Service cost
(5)
(4)
Interest cost
(21)
(21)
(26)
(25)
Actuarial gain/(loss) recognised in other comprehensive income for the year
55
(30)
33.Related-party transactions
The Group has applied the exemption in paragraph 25 of IAS 24 Related Parties with respect to disclosure of related party transactions
and outstanding balances by entities controlled by the government.
The following is a summary of transactions with related parties during the year and balances due at year-end according to Transnet’s
records:
727
639
Major public enterprises
639
727
1 369
1 097
Other public enterprises
1 097
1 369
87
817
National Government business enterprises*
817
87
23
2
Associates
2
23
22
22
Subsidiaries
22
22
2 228
2 577
2 577
2 228
Reconciliation of movement in benefit liability
Opening benefit liability
Expense as above
Company contributions
Actuarial gain/(loss)
– change in economic assumptions
– experience adjustments
Closing benefit liability
(221)
(187)
(26)
(25)
17
21
55
(30)
3
(33)
52
3
(175)
(221)
3 288
3 618
Major public enterprises
3 618
3 288
835
1 001
Other public enterprises
1 001
835
291
3 953
National Government business enterprises
3 953
291
4 414
8 572
8 572
4 414
(3 502)
(6 402)
Major public enterprises
(6 402)
(3 502)
138
(415)
Other public enterprises
(415)
138
(998)
(1 466)
National Government business enterprises*
(1 466)
(998)
1
—
Associates
—
1
The estimated contributions (based on current year contributions) for the year beginning
1 April 2022 amount to R17 million (2021: R21 million) and are included in the budget for
operating expenses.
Transnet subsidises members at a flat contribution of R213 per month per member family. The
medical inflation has no impact on the aggregate current service cost and interest cost and the
benefit liability. However, the assumed discount rate has an impact. The sensitivity of the obligation
to a change in the assumed discount rate on the present value of the obligation is as follows:
Sensitivity analysis
Closing benefit liability based on changes in discount rate:
9,03% (2021: 8,86%)
(193)
(253)
11,03% (2021: 10,86%)
(160)
(195)
Exposure to risks
The risks faced by Transnet as a result of the post-employment pension obligations and assets can be summarised as follows:
•
Inflation: The risk that future CPI inflation is higher than expected.
•
Longevity: The risk that pensioners live longer than expected and thus their pension benefit is payable for longer than expected.
•
Open-ended, long-term liability: The risk that the liability may be volatile in the future and uncertain.
•
Change in legislation: The risk that changes to legislation, including tax laws with respect to the post-employment benefits, may
increase the liability for the Group.
•
Investment risk: The plan assets held by the Transport Pension Fund: Transnet Sub-fund and the Transnet Second Defined
Benefit Fund are primarily invested in equities and bonds. This exposes the funds to a slight concentration of market risk. In
addition, as the two pension funds are defined benefit plans, if the plan assets are not adequate to fund the liabilities of the funds,
Transnet will be required to fund the deficit, thereby exposing it to investment return risk.
380
381
Subsidiaries
—
—
(3 981)
(7 902)
(8 283)
(4 361)
* Included are transactions with Prasa as detailed in note 1.
During the year the Group reversed R226 million (2021: R416 million raised) in relation to provisions and write-offs of bad debts on related
parties and at year-end the Group had a provision of R1 241 million (2021: R1 278 million) against debtors pertaining to related parties.
Details of key management compensation are set out in note 38. None of key management has or had significant influence in any entity
with whom the Group had significant transactions during the year.
Details of transactions relating to SARS and employee pensions are included in notes 8 and 32 respectively.
The AGSA is Transnet's independent external auditor, and has been involved in the external audit process since the 2019 financial year.
The AGSA is a government entity in the national sphere, but is not disclosed as a related party of Transnet, as it is an
independent organisation in terms of the constitution.
In the 2017 financial year Transnet entered into interest rate swaps with the Transnet Second Defined Benefit Fund (a related party).
Please refer to note 14 for further detail in this regard. The Transnet Second Defined Benefit Fund is disclosed in note 32.1.3.
Transnet's significant related parties include Eskom and Prasa.
9899
Annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2022
(11 279)
5 490
Profit/(loss) before taxation
5 489
(11 270)
11 037
10 354
Finance costs (refer note 34.3)
10 354
11 037
(238)
(112)
Finance income (refer note 7)
(126)
(256)
—
(9)
Dividend income
—
—
27 776
9 864
Elimination of non-cash items
9 884
27 797
13 872
14 847
– Depreciation, amortisation and derecognition (refer note 3)
14 847
13 872
(129)
101
– Increase/(decrease) in provision for employee benefits
101
(129)
– Impairment of trade and other receivables, and loans and advances
987
415
(refer note 4.2.1)
415
987
3 399
2 124
– Impairment of property, plant and equipment (refer note 4.2.2)
2 124
3 399
– (Reversal of impairment)/impairment of intangible assets
—
(5)
(refer note 4.2.2)
(5)
—
5 388
667
– Movement in provisions and other non-current liabilities
667
5 388
—
—
– (Loss)/income from associates and joint ventures (refer note 13)
6
(13)
8 157
1 431
– Fair value adjustments on derivatives
1 431
8 157
6
(25)
– Fair value adjustments on other financial assets (refer note 5)
(25)
6
(5 926)
(226)
– Unrealised foreign exchange movements
(226)
(5 926)
617
137
– Loss on disposal of property, plant and equipment (refer note 2)
137
617
44
57
– Discount on bonds amortised (refer note 6)
57
44
11
106
– Provision for inventory obsolescence
106
11
– Release of firm commitments and foreign exchange adjustments
233
1
(refer note 9)
1
233
73
19
– Decommissioning liability (refer note 9)
19
73
770
(9 814)
– Fair value adjustment of investment property (refer note 5)
(9 814)
770
177
(92)
– Movement in lease smoothing and long-term receivables
(92)
177
35
35
– Fees relating to borrowings
35
35
104
104
– Amortisation of loss on derivatives
104
104
(42)
(18)
– Other non-cash items*
(4)
(8)
27 296
25 587
25 601
27 308
(468)
(172)
Increase in inventories
(172)
(468)
(352)
616
Decrease/(increase) in trade, other receivables and contract assets
602
(349)
(1 880)
3 026
Increase/(decrease) in trade payables, accruals and contract liabilities
3 027
(1 884)
(2 700)
3 470
3 457
(2 701)
11 296
10 684
Finance costs
10 684
11 296
(57)
2
Net foreign exchange gain/(loss) on translation
2
(57)
(158)
(275)
Unwinding of discounts on provisions
(275)
(158)
(44)
(57)
Discounts on bonds amortised
(57)
(44)
11 037
10 354
10 354
11 037
341
105
Decrease in accrued interest
105
341
(464)
(479)
Deferred interest
(479)
(464)
10 914
9 980
9 980
10 914
* Other non-cash items relate to minor various non-cash transactions.
34. Cash flow information continued
34.4 Tax paid
—
—
Balance at the beginning of the year
(1)
(2)
—
—
Tax as per income statements
(10)
(8)
—
—
Balance at the end of the year
(2)
1
—
—
(13)
(9)
35. Headline earnings
(8 723)
5 055
Profit/(loss) for the year attributable to equity holder
5 048
(8 734)
617
137
Loss on disposal of property, plant and equipment (refer note 2)
137
617
770
(9 814)
Fair value adjustments on investment property (refer note 5)
(9 814)
770
3 399
2 119
Impairment of non-financial assets (refer note 4.2.2)
2 119
3 399
(3 937)
(2 503)
(2 510)
(3 948)
(9)
(37)
Loss on disposal of property, plant and equipment
(37)
(9)
(172)
2 120
Fair value adjustments on investment property
2 120
(172)
(557)
(572)
Impairment of non-financial assets
(572)
(557)
(4 675)
(992)
(999)
(4 686)
100101
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
36. Financial risk management
Introduction
The Group has a centralised Treasury function that supports the Company in its strategic objectives by providing funding from a range of
sources.
Policies
Transnet has a Board-approved Financial Risk Management Policy (FRMP) that underscores and represents the financial risk
management objectives and the financial risk management philosophy of the Transnet Group:
•
To prudently manage Transnet’s financial risks in order to reduce the financial impact (i.e. changes in cash flows) due to financial risks
materialising, thereby contributing to Transnet meeting its strategic financial objectives and remaining within Transnet’s approved risk
appetite and risk tolerance levels; and
•
To reduce earnings volatility in order to increase certainty and predictability of future cash flows for planning purposes.
Apart from the requirements of the FRMP, Treasury operates within the confines of the Transnet Delegation of Authority (DOA) Framework, as
approved by the Board of Directors.
Financial Risk Management Fundamentals
•
Protect the company against undesirable market price movements, relating to financial market risks above, while allowing
upside participation, as far as possible;
•
Aim to limit potential fair value liabilities arising from financial instruments recorded at fair value or an actual liability (loss) when the
instrument is settled;
•
Constantly protect the business, by creating certainty of revenues, securing a minimum income or protecting cash flows on an ongoing
basis, avoiding the need to time the markets as far as possible;
•
Enter into hedging transactions solely for the purpose of hedging its exposure to financial market fluctuations and no active speculation
(dealing in derivative instruments) or passive speculation (open unhedged market risks exceeding approved risk tolerance levels) is
allowed. Derivatives may only be used to offset existing or known risks which the company faces;
•
For a given level of financial risk exposure and the mitigation thereof, Transnet will seek to maximise the cost-benefit ratio; and
•
Transnet assesses, monitors and mitigates its financial risk exposures at a Group level, e.g. takes into account natural mitigation.
Credit risk
Credit risk is the risk of financial loss to the Group, if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. The Group is mainly exposed to credit risk from trade and other receivables (including lease receivables and contract assets) as
well as cash and cash equivalents, deposits with banks and financial institutions, favourable positive fair market values of derivative financial
instruments, and investments in government bonds – see counterparty risk that follows.
Trade receivables, lease receivables and contract assets
The risk management committee, a sub-committee of the executive committee (Exco), has established a credit policy under which the Group
conducts a thorough customer credit review as part of the contract approval process for new customers, as well as on an ongoing basis as
part of the revenue and credit management process to assess the credit risk of customers and ensure that the consideration receivable
under the contract is recoverable before services are rendered to a customer.
The Group’s review includes an internal financial evaluation model, as well as external credit ratings where available. The model evaluates
the ability of the customer to meet its financial obligations and allocates a credit risk score. Based on the credit risk score, credit limits and
terms are established for each customer, which represents the maximum credit facility available, as well as whether or not the customer is
required to post a bank guarantee with the Group, or pay in advance. The customer’s credit risk score is reviewed and updated on an annual
basis, and whenever there is significant change to a customers’ financial status.
Customers are categorised into the following credit risk bands based on their credit risk scores:
A
Very low risk.
B
Low risk.
C
Medium risk.
D
High risk.
E
Very high risk.
The Group applies the simplified approach in IFRS 9 Financial Instruments to measure expected credit losses using a lifetime expected credit
loss provision for trade receivables, lease receivables and contract assets. To measure expected credit losses on a collective basis, trade
receivables and contract assets are grouped based on similar credit risk characteristics and aging. The contract assets, which arise from
revenue recognised on contracts with customers but not yet invoiced, have similar risk characteristics to the trade receivables for similar types
of contracts.
36. Financial risk management continued
For the purposes of calculating expected credit losses under IFRS 9, these credit risk bands are combined as follows:
A+BLow risk.
CMedium risk.
D+EHigh risk.
In addition to the above, each Operating division is treated as a separate debtors’ portfolio, in order to better reflect the unique economic
exposure and customer behaviour of each division. The Operating divisions are:
•
Transnet Freight Rail;
•
Transnet Engineering;
•
Transnet National Ports Authority;
•
Transnet Port Terminals;
•
Transnet Pipelines; and
•
Transnet Property.
Stage 2 expected loss rates (i.e. for balances less than 90 days past due) are calculated based on the payment profiles of customers over
the five-year period prior to the financial year-end, and the historical default rates experienced during this period for each credit risk band
above, and separately for each Operating division. Stage 3 expected loss rates (i.e. for balances already in default) are estimated at 100%,
due to the high likelihood of non-collection of these balances, although the Group will always continue with collection efforts and enforcement
activities until there is no hope of collection.
The historical loss rates are adjusted for current and forward-looking information on macroeconomic factors affecting the ability of the
customers to settle their outstanding amounts. The Group has identified the gross domestic product (GDP) as a factor affecting its customers
and accordingly adjusts the historical loss rates based on changes in the factor. For example, where the GDP decreases, it is anticipated that
customers will have difficulty paying off their accounts, as a result the historical loss rate is increased to account for this factor.
Further disclosures regarding trade and other receivables are provided in note 18 and later in this note.
Counterparty risk
Counterparty risk exposures arise mainly as a result of the investment of operational cash on hand, surplus cash due to prefunding strategies,
positive fair market values of derivative hedging instruments, investments in government bonds and guarantees issued by counterparties to
mitigate financial risks in supply agreements. The Group’s main objectives of its counterparty risk policies are:
•
To mitigate counterparty risk exposures;
•
To diversify counterparty risk exposures;
•
To set limits for the different types of counterparty risk exposures; and
•
To ensure that financial transactions are done with approved high-credit-quality counterparties.
The counterparty risk policy of the Group is fully aligned with the requirements of the Treasury Regulations as referred to in the PFMA:
•
Selection of counterparties through credit risk analysis;
•
Establishment of investment limits per institution;
•
Establishment of investment limits per investment instrument;
•
Monitoring of investments against limits;
•
Reassessment of investment policies on a regular basis;
•
Reassessment of counterparty credit risk based on credit ratings; and
•
Assessment of investment instruments based on liquidity requirements.
The Group’s exposures to counterparty risks in respect of all Treasury-related transactions are confined to credible counterparties and are
managed within Board-approved credit limits. Limits are reviewed and approved by the Board Audit Committee on an annual basis. Treasury
performs ongoing credit evaluations of the financial position of its counterparties to limit exposure to undue credit risk. Guarantees are issued
under specific powers granted in terms of section 66 of the PFMA and in accordance with a Board-approved DOA Framework.
102103
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
36. Financial risk management continued
Market risk
Foreign currency risk
Foreign currency risk arises where payments need to be made in currencies that are not denominated in rand hence exposing the Company
to exchange rate fluctuations. The objective is to mitigate foreign currency risk by bringing certainty to future currency payments by hedging it
to the rand, thereby insulating the Group’s income statement against exchange rate fluctuations.
It is the Group’s preference to enter into rand-based agreements to mitigate foreign currency risks. Where this is not possible, Transnet
will hedge any currency exposure as soon as the agreements become firm and ascertainable.
Business units report all open exposures on a monthly basis. Transnet’s policy allows for a portion of Operating divisions’ exposures to
be unhedged with the limits set in the FRMF.
Hedge accounting is applied to all exposures greater than USD5 million to minimise volatility in the income statement, and the performance
is monitored monthly by the hedge accounting committee, a sub-committee of the finance committee.
Commodity risk
Commodity risk refers to the variability of payments due to changes in underlying commodities such as Brent crude oil, steel and iron ore.
Although Transnet is exposed to such underlying commodity price changes, only fuel exposures will be hedged subject to a maximum tenor of
18 months using vanilla type instruments that are well correlated to fuel prices.
As a mitigating measure most general freight business (GFB) revenue contracts are linked to a surcharge levy that adjusts the rail price
based on changes in fuel prices, exchange rates, steel prices and electricity.
Interest rate risk
Interest rate risks arise due to fluctuations in interest rates that can impact the Group’s borrowing programme, investments in interest-bearing
instruments and derivative financial instruments by changing future interest payments or receipts. To this extent, Transnet aims to maintain or
reduce the weighted average cost of debt (WACD) of borrowings within the fixed to floating rate ratio allowed in the FRMF, taking cognisance
of interest rate cycles.
Transnet aims to enter into contracts that will result in the desired exposure to fixed or floating interest rates rather than changing the risk
profile via derivative transactions. Foreign currency interest rate exposures in borrowings are hedged to the rand as soon as transactions
are concluded to mitigate against foreign interest rate movements. The impact of changes are reported monthly to governance structures.
Other price risk
The only other market risk that Transnet is exposed to is equity price risk. Although Transnet does not trade in equities, it has an equity
investment in Brazil, which is listed on the Brazilian Stock Exchange. This is a very small portion of the overall risk exposure of Transnet.
Liquidity risk
Liquidity risk impacts the ability to have the appropriate funds available to effect the payment to third parties. To mitigate and manage liquidity
risk, cash flow projections, consisting of short-, medium- and long-term projections from Operating divisions, are monitored to enable Treasury
to manage the funding requirement of the Group. In addition, Transnet has access to various funding sources that include the debt capital
markets, direct foreign investment, export credit agencies and various short-term facilities that assist in effectively managing its working capital
requirements.
The DMTN programme size is R80,0 billion, of which an amount of R36,7 billion is still available. The global medium-term note (GMTN)
programme size is USD6,0 billion, of which an amount of USD5 billion is available. No issues were done on the GMTN programme during
the 2022 financial year.
Various liquidity measures are in place to ensure that Transnet will be able to honour its commitments. Transnet only invests surplus cash that
ensures capital preservation. Capital market investments are only allowed if there is a requirement to ringfence cash for longer periods on a
specific project, or as a result of a condition stipulated by a regulator. These will be held to maturity.
36. Financial risk management continued
Bonds at carrying and nominal values
Transnet issues bonds listed on the Johannesburg Stock Exchange (JSE), Luxembourg Stock Exchange and the London Stock Exchange.
The following bonds were in issue at 31 March 2022 for the Company and the Group:
Domestic Rand bonds
TN21U
13 May 21
9,50
—
—
1 000
1 000
TN23
6 Nov 23
10,80
7 006
6 929
7 118
7 000
TNF25U
14 Feb 25
6,47
2 500
2 500
2 500
2 500
TNF25
14 Feb 25
6,575
550
550
—
—
TN25
19 Aug 25
9,50
9 937
9 929
10 011
10 000
TNF26U
13 Aug 26
6,87
1 930
1 930
—
—
TNF27
7 Feb 27
6,975
316
316
—
—
TN27
14 Nov 27
8,90
8 172
8 565
7 061
7 488
TN29
7 Feb 29
10,26
200
200
—
—
TN30
9 Oct 30
10,50
4 580
4 622
4 484
4 527
TNI33
28 Feb 33
5,23
285
286
—
—
TN34
7 Feb 34
11,35
108
108
—
—
TN40
9 Oct 40
10,75
4 871
5 070
4 485
4 650
Total domestic Rand bonds
40 455
41 005
36 659
37 165
Foreign Rand bonds
TNZA21
13 May 21
9,50
—
—
5 000
5 000
Euro 20281
18 Apr 28
13,50
1 972
2 000
1 969
2 000
Euro 20291
30 Mar 29
10,00
1 183
1 500
1 159
1 500
Total foreign Rand bonds
3 155
3 500
8 128
8 500
USD bonds
TNUS22
26 Jul 22
4,00
14 628
14 636
14 735
14 762
Total foreign currency bonds
14 628
14 636
14 735
14 762
Total bonds in issue at year-end
58 238
59 141
59 522
60 427
1
These bonds are guaranteed by the Government of the Republic of South Africa, and the Company paid R1,2 million in guarantee fees (2021: R1,2
million). The amounts in the above table are all in respect of bonds held at amortised cost.
104105
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
36. Financial risk management continued
Concentration of liquidity risk
The sources of funding are tabled below. Altogether 46% of the borrowings are widely held (2021: 47%):
6 243
4 481
ABSA Bank Ltd
4 481
6 243
3 086
2 722
African Development Bank
2 722
3 086
2 786
2 500
Bank of China
2 500
2 786
13 263
11 728
China Development Bank
11 728
13 263
4 000
6 000
Development Bank of South Africa
6 000
4 000
3 671
3 146
Export Development Canada
3 146
3 671
1 289
1 160
FutureGrowth Asset Management (Pty) Ltd
1 160
1 289
576
432
French Development Bank
432
576
3 743
3 305
GFB 2015 (RF) Proprietary Limited (US Exim)
3 305
3 743
2 000
1 200
Industrial and Commercial Bank of China
1 200
2 000
—
1 000
Industrial Development Corporation
1 000
—
1 224
1 049
Investec Bank Ltd
1 049
1 224
7 471
6 650
JP Morgan Chase Bank
6 650
7 471
2 366
2 103
KfW Development Bank
2 103
2 366
1 600
1 600
KFWIPEX_Bank GmbH
1 600
1 600
1 118
1 021
Libfin
1 021
1 118
4 184
5 694
Nedbank Ltd
5 694
4 184
1 303
1 135
Old Mutual Life Assurance Company (SA) Ltd
1 135
1 303
943
821
Old Mutual Specialised Finance (Pty) Ltd
821
943
2 644
4 528
RMB – Division of FirstRand Bank Ltd
4 528
2 644
106
95
Sanlam Investment Management (Pty) Ltd
95
106
2 700
2 500
Standard Bank Corporate Investment Bank
2 500
2 700
—
2 029
The New Development Bank
2 029
—
Various holders of Transnet bonds and commercial paper,
61 129
61 129
59 861
widely held, and traded2
59 861
1 696
2 078
Other3
2 078
1 696
129 141
128 838
Total borrowings1
128 838
129 141
1
Borrowings include loans of R15 216 million (2021: R17 792 million) in respect of the acquisition of locomotives, which are secured by a pledge of the
associated locomotives with a carrying value of R28 727 million (2021: R30 604 million) – refer note 9.
Further, borrowings include loans amounting to R22 786 million (2021: R27 056 million) in respect of locomotives acquired under the 1 064 locomotive supply
agreements, of which R15 033 million (2021: R17 006 million) is secured by a pledge of locomotives already delivered by the OEMs under the programme.
The table below provides a breakdown of the 1 064 locomotive supply agreements.
CRRC E-loco
CRRC SA
BT*
WABTEC South Africa
Technologies (Pty) Ltd
Locomotives contracted
359
232
240
233
Delivered to date
260
22
82
233
Outstanding deliveries
99
210
158
—
*
Locomotives not pledged as security for associated loans.
Transnet has filed an application with the Gauteng High Court to have all four 1 064 locomotive supply agreements reviewed and set aside, with just and equitable
relief. The locomotive supply agreements with CRRC E-loco and CRRC SA are currently suspended pending the outcome of the court application, while the contract
with BT is not suspended. Should the agreements be set aside by the courts, unsecured loans amounting to R5 249 million (2021:
R7 264 million) would become payable, and would be subject to negotiations between Transnet and the banks.
2
Includes bonds held at amortised cost of R58 238 million, commercial paper of R1 623 million and repo liabilities of R0,05 million. (2021: includes bonds held
at amortised cost of R59 522 million, commercial paper of R1 581 million and repo liabilities of R26 million).
3
Includes lease liabilities of R2 078 million (2021: R1 675 million).
36. Financial risk management continued
Funding plan
Over the next five years Transnet intends to raise R46,9 billion (R67,3 billion after new projected redemptions) from the market, which is 47,4%
of Transnet’s R98,9 billion capital expenditure.
Net cash flows from operations
27 266
17 457
20 879
24 528
26 927
117 057
Capital investment
(18 023)
(15 143)
(20 602)
(23 715)
(21 446)
(98 929)
Loan redemptions
(19 159)
(13 188)
(8 623)
(16 063)
(7 993)
(65 026)
(9 916)
(10 874)
(8 346)
(15 250)
(2 512)
(46 898)
New debt capital redemptions
(3 050)
(400)
(4 931)
(5 365)
(6 620)
(20 366)
Funding mandate
(12 966)
(11 274)
(13 277)
(20 615)
(9 132)
(67 264)
Contractual maturity analysis
The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting
arrangements, as at 31 March 2022 for the Company and the Group:
Carrying
Contractual
More
value
cash flows
0 to 12
1 to 2
2 to 3
3 to 4
4 to 5
than
2022
2022
months
years
years
years
years
5 years
R million
R million
R million
R million
R million
R million
R million
R million
Bonds (Company and Group)
(58 238)
(88 693)
(19 312)
(11 180)
(6 920)
(12 894)
(4 645)
(33 742)
Secured bank loans (Company
and Group)
(15 216)
(19 378)
(2 862)
(2 799)
(2 596)
(2 438)
(2 307)
(6 376)
Unsecured bank loans
(Company and Group)
(37 006)
(56 478)
(9 637)
(6 743)
(6 605)
(6 221)
(6 068)
(21 204)
Commercial paper (Company and Group)
(1 623)
(1 713)
(1 713)
—
—
—
—
—
Other borrowings
(Company and Group)
(16 755)
(18 856)
(12 197)
(2 329)
( 840)
( 788)
( 732)
(1 970)
Total borrowings (Company and Group)
(128 838)
(185 118)
(45 721)
(23 051)
(16 961)
(22 341)
(13 752)
(63 292)
Trade payables, accruals and contract
liabilities (Company)1
(20 564)
(20 564)
(20 564)
—
—
—
—
—
Trade payables, accruals and contract
liabilities (Group)1
(20 567)
(20 567)
(20 567)
—
—
—
—
—
Interest rate swaps
(1 456)
(1 626)
(599)
(468)
(262)
(161)
(93)
(43)
Forward exchange contracts
used for hedging
(49)
(60)
(60)
—
—
—
—
—
Outflow
(668)
(680)
(680)
—
—
—
—
—
Inflow
619
620
620
—
—
—
—
—
Other forward exchange contracts
(2)
(2)
(2)
—
—
—
—
—
Outflow
(27)
(27)
(27)
—
—
—
—
—
Inflow
25
25
25
—
—
—
—
—
Total derivative financial liabilities
(1 507)
(1 688)
(661)
(468)
(262)
(161)
(93)
(43)
1
Trade payables and accruals, excluding post-retirement employee benefits and tax related accruals.
106107
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
36. Financial risk management continued
Contractual maturity analysis continued
The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting
arrangements, as at 31 March 2021, for the Company and the Group:
Carrying
Contractual
More
value
cash flows
0 to 12
1 to 2
2 to 3
3 to 4
4 to 5
than
2021
2021
months
years
years
years
years
5 years
R million
R million
R million
R million
R million
R million
R million
R million
Bonds (Company and Group)
(59 522)
(91 689)
(10 801)
(18 998)
(10 823)
(5 897)
(12 537)
(32 633)
Secured bank loans (Company
and Group)
(17 869)
(22 384)
(3 367)
(2 714)
(2 597)
(2 501)
(2 428)
(8 777)
Unsecured bank loans
(Company and Group)
(33 781)
(51 530)
(6 247)
(5 985)
(6 248)
(6 126)
(5 662)
(21 262)
Commercial paper (Company and Group)
(1 581)
(1 647)
(1 647)
—
—
—
—
—
Other borrowings
(Company and Group)
(16 388)
(19 428)
(7 235)
(6 821)
( 913)
( 879)
( 844)
(2 736)
Total borrowings (Company and Group)
(129 141)
(186 678)
(29 297)
(34 518)
(20 581)
(15 403)
(21 471)
(65 408)
Trade payables, accruals and contract
liabilities (Company)1
(17 495)
(17 495)
(17 495)
—
—
—
—
—
Trade payables, accruals and contract
liabilities (Group)1
(17 497)
(17 497)
(17 497)
—
—
—
—
—
Interest rate swaps
(2 350)
(2 524)
(968)
(752)
(481)
(273)
(119)
69
Forward exchange contracts
used for hedging
(64)
(114)
(80)
(34)
—
—
—
—
Outflow
(1 015)
(1 126)
(823)
(303)
—
—
—
—
Inflow
951
1 012
743
269
—
—
—
—
Other forward exchange contracts
(13)
(13)
(13)
—
—
—
—
—
Outflow
(69)
(69)
(69)
—
—
—
—
—
Inflow
56
56
56
—
—
—
—
—
Total derivative financial liabilities
(2 427)
(2 651)
(1 061)
(786)
(481)
(273)
(119)
69
1
Trade payables and accruals, excluding post-retirement employee benefits and tax related accruals.
36. Financial risk management continued
Credit risk
Maximum exposure and analysis of exposures to credit risk
The following maximum exposures to credit risk existed at year-end in respect of financial assets:
2022
2021
Gross
Expected
Expected
Net
Gross
Expected
Expected
Net
carrying
credit
loss
carrying
carrying
credit
loss
carrying
value
losses
rate
value
value
losses
rate
value
R million
R million
%
R million
R million
R million
%
R million
assets
– Low risk
6 994
(2 053)
29
4 941
7 766
(2 029)
26
5 737
– Medium risk
2 095
(1 035)
49
1 060
1 439
(313)
22
1 126
– High risk
2 188
(1 446)
66
742
2 110
(1 291)
61
819
11 277
(4 534)
40
6 743
11 315
(3 633)
32
7 682
Other amounts receivable1
1 626
(546)
34
1 080
1 675
(469)
28
1 206
Investments – current
61
—
—
61
248
—
—
248
Long- and short-term loans
and advances2
—
—
—
—
2
—
—
2
Investment and price risk
4 406
—
—
4 406
1 408
—
—
1 408
assets
– Low risk
6 994
(2 053)
29
4 941
7 766
(2 029)
26
5 737
– Medium risk
2 095
(1 035)
49
1 060
1 439
(313)
22
1 126
– High risk
2 188
(1 446)
66
742
2 110
(1 291)
61
819
11 277
(4 534)
40
6 743
11 315
(3 633)
32
7 682
Other amounts receivable1
1 640
(546)
33
1 094
1 675
(469)
28
1 206
Investments – current*
61
—
—
61
248
—
—
248
Long- and short-term loans
and advances2
—
—
—
—
2
—
—
2
Investment and price risk
4 406
—
—
4 406
1 408
—
—
1 408
1
Reconciliation to note 18
Prepayments and other amounts receivable
Company
Group
Other amounts receivable
R1 080 million (2021: R1 206 million)
R1 094 million (2021: R1 206 million)
Prepayments
R630 million (2021: R594 million)
R630 million (2021: R594 million)
R1 710 million (2021: R1 800 million)
R1 724 million (2021: R1 800 million)
2
Long-term loans and advances (Company and Group)
R0 million (2021: R0 million)
Short-term loans and advances (Company and Group)
R0 million (2021: R2 million)
Low risk: No guarantee is required from the customer.
Medium risk: 50% to 75% guarantee required from the customer.
High risk: In such instances, customers are required either to provide 100% guarantee or transact on a cash basis only.
The balances for other receivables and loans and advances are not disaggregated for internal reporting purposes.
Price risk: The risk that financial derivatives and bond transactions have to be closed out at a market value loss as a result of the unfavourable movements in
market rates.
Bond issuer risk: The risk that an issuer of bonds will not be able to fulfil its financial obligations on maturity date in accordance with the terms and conditions of
the bond issues.
IFRS 7: Financial Instruments: Disclosure defines credit risk as the risk that one party to a financial instrument will cause a financial loss for the other party by
failing to discharge an obligation. As such, Transnet will suffer financial losses on guarantees issued as the Group would be required to make good the failure by
a third party to discharge an obligation.
Credit enhancements in the form of title deeds and pension fund cessions for loans and advances, and deposits, bank and holding company guarantees
in respect of amounts included in trade and other receivables are held by the Group.
*Includes restricted short-term investment held the TPL Rehabilitation Trust in the prior year.
108109
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
36. Financial risk management continued
Guarantees and deposits to the value of R2,1 billion were held as collateral in respect of trade and other receivables (2021: R2,3 billion).
Trade receivables to the value of R23,1 million (2021: R0,5 million) were written off in the current year and remain subject to enforcement
activity by the Group.
Concentration of credit risk
The Group determines concentration of credit risk from trade receivables based on the size of individual customer balances and by industry
sector. The Company’s and Group’s 12 most significant customers comprise 34% of the trade receivables at 31 March 2022 (2021: 28%).
The following charts and graphs reflect the distribution of credit risk, expressed in terms of long-term credit ratings, excluding guarantees and
trade receivables. The exposures below include cash investments (call, fixed deposits and money market funds), price risk exposures and
operational bank balances:
1.35 0.04
0,03
0.07
0,07
AA+
65,7
AA+
A-
A-
A
1 342
A
4 405
A-
A-
1 500
0,00
949,75
1 500
0,00
1 207,08
1 250
1 250
n
1 000
n
1 000
750
750
500
500
250
250
0
0
A+
AA+
A+
AA+
3 500
0,07
1,35
0,04
3 455,41
300
0,07
65,71
0,03
134,92
3 000
250
2 500
200
lion
2 000
on
150
1 500
R
R
100
1 000
500
50
0
0
A+
A+
A+
AA+
A+
A+
A+
AA+
36. Financial risk management continued
Market risk
Foreign currency risk
The Company’s and Group’s net long/(short) foreign currency risk exposures as at 31 March 2022 are reflected below (expressed in
notional amounts):
Foreign currency bonds
(1 000)
—
—
(1 000)
—
—
Secured bank loans
(811)
—
—
(909)
—
—
Brazil equity investment
2
—
—
2
—
—
Gross financial position exposure
(1 809)
—
—
(1 907)
—
—
Exposures for future expenditure
(41)
(3)
—
(43)
—
—
Gross foreign currency exposure
(1 850)
(3)
—
(1 950)
—
—
Forward exchange contracts
41
3
—
41
—
—
Cross-currency swaps
1 811
—
—
1 909
—
—
Net uncovered exposure
2
—
—
—
—
—
Sensitivity analysis
The table below shows the impact on profit and loss (non-hedge-accounted transactions) of a stronger and weaker Rand for the Company and
Group, as a result of fair value movements of cross-currency interest rate swaps and forward exchange contracts:
Currency
EUR
1
(2)
1,4
(1,4)
(18)
5
(5)
5
USD
0,4
(0,1)
0,2
(0,2)
59
1
14
(14)
Totals
(2,1)
1,6
(1,6)
6
9
(9)
Hedge accounting is applied to 99% of currency hedges where structures are designated either as fair value hedges or cash flow hedges as
detailed in note 14. The sensitivity analysis above includes the impact of fair value movements on derivatives that are part of effective hedge
accounting, hence the analysis is on the net balance, after the offsetting effect of the hedged item and hedging instruments. The sensitivity
analysis was calculated using a 95% confidence interval over a 28 working day horizon, and assumes all other variables remain unchanged.
Basis swap adjustments have been added to the curves when doing the sensitivities to ensure that a more accurate market value is reflected,
taking into account market liquidity.
Value at risk (fx)
The value at risk (VaR) for direct committed capital and operational exposures and the Brazilian equity investment is R3 million (2021: R1
million). VaR calculates the maximum pre-taxation loss expected (or worst-case scenario) on a position held, over a 90 working day horizon
given a 95% confidence level, and is used on a limited basis at Transnet. The VaR methodology is a statistically defined, probability-based
approach that takes into account, inter alia, market volatilities relative to a position held. The Group uses historical simulation and the model
assumes that historical patterns will repeat into the future and does not take extreme market conditions into account.
110111
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
36. Financial risk management continued
Foreign exchange rates
The mid-rates of exchange against Rand used for conversion purposes were:
US Dollar
14,6360
14,76175
Japanese Yen
0,1204
0,13346
Euro
16,2196
17,34506
The Company’s and Group’s exposure to fixed and floating interest rates on financial liabilities is as follows:
Company
Group
(99 947)
(94 795)
Fixed-rate liabilities
(94 795)
(99 947)
(29 194)
(34 043)
Floating-rate liabilities
(34 043)
(29 194)
(129 141)
(128 838)
Total1
(128 838)
(129 141)
1
These values include the repo repo liability of R0,05 million (2021: R26 million), which have a maturity term of one week.
The exposure to floating interest rates on foreign financial liabilities is R11 728 million (2021: R13 263 million) for the Company and Group.
No floating rate foreign liabilities were swapped to fixed rates. The Board approved a targeted range of fixed interest rates that may be
managed to enable management to utilise interest rate yields.
Sensitivity analysis
The sensitivity analysis below reflects the interest rate impact on the finance cost budget for the 2022 financial year in respect of existing
liabilities and new funding requirements for Company and Group.
Finance cost impact
(increase)/decrease
(463)
928
(1 158)
2 318
(2 317)
(342)
684
(855)
1 710
(1 710)
The impact on profit and loss of higher foreign interest rates on the Company and Group is insignificant, as all foreign debt has been swapped
to a fixed Rand interest rate risk.
Transnet is exposed to Interest Rate Benchmark Reform with respect to LIBOR on loans received from China Development Bank which had
a carrying amount of R11 728 million at 31 March 2022 (2021: R13 170 million), and the corresponding hedges – refer note 14. Transnet is
in contact with the counterparties, however at this stage no alternative benchmark rate has been suggested.
Transnet expects the impact of the benchmark reform to be limited to changes in the cash flows under the loans and corresponding hedges,
valuation of derivatives, application of hedge accounting and the impact on the accounting systems. Transnet has set-up a transition project
with the assistance of external experts to address the potential issues that may arise from the reform. This process is expected to be
concluded by 31 March 2023. All new transactions entered into going forward will be based on the new benchmark rates applicable to the
currency.
Price risk
The Group has an exposure to equity price risk on the Brazilian Stock Exchange. At year-end, the quoted value of the Group’s investment in
Brazil was R41 million (2021: R38 million). Management believes that the foreign exchange exposure on this investment is significantly
greater than that of equity price risk and as such, the sensitivity for this investment has been included in the foreign currency risk net position
and VaR calculations.
Commodity price risk (fuel)
The table below shows the cash flows at risk scenarios against the approved fuel budget for the 2023 financial year at various levels of Brent
crude and USD/ZAR ($/R) exchange rates as at 31 March 2022 (excluding energy levies for Company and Group). Amounts are in R million:
BRT @ $48
1,158
850
718
587
279
BRT @ $69
929
482
—
100
(347)
BRT @ $91
701
114
(136)
(387)
(974)
BRT @ $110
498
(213)
(516)
(820)
(1,530)
BRT @ $120
392
(383)
(714)
(1,045)
(1,820)
36. Financial risk management continued
The table below shows the cash flow at risk scenarios against the approved fuel budget for the 2022 financial year at various levels of Brent crude and
USD/ZAR ($/R) exchange rates as at 31 March 2021 (excluding energy levies) for Company and Group. Amounts are in R million:
BRT @ $41
1 030
737
612
486
193
BRT @ $51
920
556
399
242
(123)
BRT @ $64
779
321
—
(72)
(530)
BRT @ $76
637
87
(150)
(386)
(937)
BRT @ $86
528
(95)
(362)
(630)
(1 253)
Categories of financial instruments:
10 502
11 992
– Trade receivables and contract assets (including bank and cash) *
12 464
10 900
8 100
7 281
– Derivatives held for risk management
7 281
8 100
195
220
– Other financial assets
220
195
38
41
– Equity investment (Rumo)
41
38
– Liabilities measured at amortised cost (including trade payables,
146 636
149 402
accruals and contract liabilities)**
149 405
146 638
2 427
1 507
– Derivatives held-for-hedging
1 507
2 427
*Includes short-term investments and restricted cash held by the TPL Rehabilitation Trust.
** Trade payables, accruals and contract liabilities, excluding post-retirement employee benefit and tax related accruals.
Except as detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recorded at
amortised cost in the financial statements approximate their fair values:
133 403
127 466
134 085
126 760
Borrowings
134 085
126 760
133 403
127 466
1 460
1 675
1 848
2 078
Lease liabilities
1 848
2 078
1 460
1 675
112113
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
36. Financial risk management continued
Fair values of financial instruments
The table below provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into
levels 1 to 3 based on the degree of market observability of the inputs of the fair value:
•
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
•
Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category of instrument consists mainly of
derivatives concluded for risk management purposes.
•
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
Derivative financial assets (Company and Group)
—
7 281
—
7281
Other financial assets (Company and Group)***
—
—
220
220
Equity investment (Rumo) (Company and Group)
41
—
—
41
Derivative financial liabilities (Company and Group)
—
1 507
—
1 507
Derivative financial assets (Company and Group)
—
8 100
—
8 100
Other financial assets (Company and Group)***
—
—
195
195
Equity investment (Rumo) (Company and Group)
38
—
—
38
Derivative financial liabilities (Company and Group)
—
2 427
—
2 427
* FVTPL – Fair value through profit and loss.
2021
** FVTOCI – Fair value through other comprehensive income.
2022
*** Opening balance (R million)
195
201
# Restricted debt investment held by the TPL Rehabilitation Trust.
Fair value adjustment (R million)
25
(6)
Closing balance (R million)
220
195
Measurement of fair values
The table below shows the valuation techniques used in measuring level 2 and level 3 fair values, as well as the significant
unobservable inputs used:
Cross-currency and
Discounted cash flow method using market yield curves
Not applicable
Not applicable
interest rate swaps
to project and discount cash flows. The Monte Carlo simulation
and forward exchange
model is used, incorporating market inputs that were
contracts used for
observable, probabilities of default, recovery rates and
hedging1
expected future exposures per counterparty.
Issued bonds
Bonds were priced at fair values using quoted market prices.
Not applicable
Not applicable
Other financial assets2
Net asset value
Not applicable
Not applicable
Other financial liabilities3
Loans were valued using risk-free yield curves adjusted for
Not applicable
Not applicable
credit risk of counterparties.
1
Fair values include market observable credit valuation adjustments (CVAs) and debit value adjustments (DVAs).
2
Guardrisk insurance cell.
3
Other financial liabilities include borrowings and finance lease obligations.
Transfers between levels 1 and 2
There were no transfers in either direction between levels 1 and 2 in both the current and prior reporting period.
36. Financial risk management continued
Level 3 fair values
There were no transfers into or out of level 3 in both the current and prior reporting period.
The net gains and losses on financial instruments are detailed below:
Liabilities measured at amortised cost1 (refer note 6)
(11 617)
(11 617)
Financial assets at amortised cost (refer note 7)
112
126
Financial assets and liabilities held at fair value through profit or loss2 (refer note 5)
313
313
Equity and debt investments held at fair value through other comprehensive income
3
8
Liabilities measured at amortised cost1 (refer note 6)
(12 347)
(12 347)
Financial assets at amortised cost (refer note 7)
238
238
Financial assets and liabilities held at fair value through profit or loss2 (refer note 5)
(548)
(548)
Equity and debt investments held at fair value through other comprehensive income
(11)
23
1
The net loss on financial liabilities measured at amortised cost consists mainly of interest expense after offsetting against effective cash flow hedges.
2
The net gain/(loss) on Company and Group financial assets and financial liabilities held-for-trading is a R288 million gain (2021: R542 million loss).
Transnet’s credit rating
Transnet has two officially recognised rating agencies: Moody’s and S&P. Transnet’s credit rating is depicted in the table below:
Corporate Family Rating/Foreign currency rating
Ba3/Ratings under review
BB-/Negative outlook
Corporate Family Rating/Local currency rating
Ba3/Ratings under review
BB-/Negative outlook
National scale rating (NSR) – long/short term
A2.za/P-1.za/Ratings under review
zaAA/zaA-1+
BCA/SACP
B2/Ratings under review
bb-/Negative outlook
On 3 November 2021 Moody’s revised Transnet’s Corporate Family Ratings (long-term local and foreign currency) lower to Ba3 from Ba2, the
Baseline Credit Assessment (BCA) to b1 from ba3 and the National Scale Rating (NSR) to A2.za from Aa2.za. All other short-term ratings
were affirmed. The outlook remains negative.
The downgrade impacted 10 loans, with a total outstanding capital balance of R30,2 billon as at September 2021. All the covenant waivers,
where relevant, were obtained before the release of the half year results in December 2021.
On 8 June 2022 Moody’s placed Transnet’s corporate family ratings (long-term local and foreign currency) of Ba3, the National Scale Rating
(NSR) senior unsecured MTN programme of A2.za and NSR short-term rating of P-1.za under review. The BCA was lowered to b2 from b1, due
to concerns about Transnet’s exposure to weak liquidity management and high refinancing risk.
The downgrade in the BCA affected 2 (two) loans of R6 billion relating to a single lender. The waiver discussions were held and completed
on 23 June 2022 with the lender confirming that they would not exercise their rights relating to the associated loan covenant breach.
On 26 November 2021, S&P placed Transnet’s current ratings on credit watch negative citing that liquidity is more strained than a year ago.
The credit watch negative was extended by three months on 23 February 2022 after which it will conduct another review and take the
appropriate rating action. S&P acknowledged the positive progress made by Transnet on the matters raised when the company was placed
under credit watch negative in November 2021, particularly the completion of the waiver process, the funding raised since the beginning of the
2022 calendar year and the progress with the refinancing of the TNUS22 bond maturity. The current action from S&P does not have any impact
on the loan covenants.
On 25 July 2022, S&P removed Transnet from credit watch negative, citing Transnet’s improved liquidity position.
114115
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statements
37. Details of investments in subsidiaries and associates
for the year ended 31 March 2022
Environmental responsibility
Transnet Pipelines Rehabilitation Trust2
100
100
100
—
—
72*
8*
—
—
—
—
Transnet International Holdings SOC Ltd (TIH)3
100
100
100
—
—
—
—
—
—
—
—
*
Includes contributions from Transnet Pipelines of R64 million (2021: R21 million).
1 Incorporated in the Republic of South Africa, unless stated otherwise.
2 During the prior reporting year, the National Energy Regulator of South Africa (Nersa) approved the use of a financial security alternative to the Transnet
Pipelines Rehabilitation Trust (the Trust) resulting in the trustees passing a resolution to terminate the Trust. The Trust was in the process of dissolution at
31 March 2022 and was finally dissolved on 6 May 2022. All the assets and liabilities of the trust were subsequently transferred to Transnet Pipelines.
3 Dormant.
Commercial Cold Storage (Ports) (Pty) Ltd
Storage and bondage
30
30
—
—
1
1
—
—
31
26
32
27
Comazar (Pty) Ltd2
Transport logistics
32
32
13
13
8
8
21
21
—
—
—
—
RainProp (Pty) Ltd
Property development
and management
20
20
—
—
1
1
—
—
35
43
36
44
Gaborone Container Terminal3
Container terminal
36
36
6
6
—
—
—
—
19
31
25
37
Cytobix (Pty) Ltd (Godisa supplier
development fund)
Supplier development
50
50
—
—
55
55
55
55
—
—
—
—
19
19
65
65
76
76
85
100
93
108
1
Incorporated in the Republic of South Africa, unless stated otherwise.
2
Dormant.
3
Incorporated in Botswana.
Summarised financial information of significant equity-accounted investees
Commercial Cold
Gaborone
Storage (Ports)
Container
RainProp
(Pty) Ltd
Terminal
(Pty) Ltd
R million
R million
R million
Financial position
Total assets
111
91
835
Total liabilities
9
5
254
Revenue
58
19
233
Net profit
14
(3)
68
116117
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
38. Group executive committee and director emoluments
The table below depicts the guaranteed pay of the Transnet Exco for the reporting year:
Guaranteed Pay of Transnet Group Executive team
KV Reddy10
—
—
—
—
—
2 238
Xoliswa Mpongoshe4
—
—
—
—
—
317
T Majoka7, 10
—
—
—
—
—
480
PPJ Derby1
7 784
714
2
—
8 500
8 500
M Phillips7, 8
3 919
279
2
—
4 200
4 623
K Phihlela7
—
—
—
—
—
2 400
S Khathi7
—
—
—
—
—
1 442
MD Gregg-Macdonald2, 3, 9
—
—
—
—
—
11 397
K Ngema6, 7, 8
2 315
208
1
2 432
4 956
4 757
P Munyai8
3 828
297
2
—
4 127
3 382
BL Kgomo8, 12
1 021
98
1
194
1 314
3 250
V Nemukula8
3 570
328
2
—
3 900
3 900
N Dlamini1, 8
5 798
—
2
—
5 800
3 375
A Shaw8
4 608
490
2
—
5 100
3 824
S Coetzee8
5 398
—
2
—
5 400
4 950
B Kani8
3 803
295
2
—
4 100
3 759
S Mzimela8
6 098
—
2
—
6 100
6 100
R Mills8
3 935
383
2
—
4 320
3 960
V Dube6, 8
2 319
150
1
5 028
7 498
4 037
M Silinga8
5 375
523
2
—
5 900
2 950
K Phahlamohlaka8
4 267
331
2
—
4 600
2 683
L Sesoko7, 10
—
—
—
—
—
1 330
X Ntshingila5, 7
1 106
118
1
1 090
2 315
821
T Siyaya5, 6, 7
1 479
115
2
1 424
3 020
643
IK Matsheka11
2 225
173
1
—
2 399
—
S Khan11
328
30
—
—
358
—
DJ Mdaki5,11
1 556
151
1
513
2 221
—
Total
70 732
4 683
32
10 681
86 128
85 118
*
Included in trade payables, accruals and contract liabilities (refer note 28).
1
Group executives who are members of the Board of directors.
2
Group executives who were members of the Board of directors.
3
Includes settlement in respect of service termination.
4
Member of Exco for 1 month of the financial year.
5
Acted as Exco member during the financial year.
6
Includes voluntary severance package benefit.
7
Acted as Exco member in the prior financial year.
8
Appointed as Exco member during the previous financial year.
9
Acted as Group Chief Financial Officer from 1 April to 30 June 2020, and appointed as Group Treasurer from 1 July to 19 October 2020.
10
Left Exco during the prior financial year.
11
Appointed as Exco member during the financial year.
12
Mr BL Kgomo passed away in July 2021.
38. Group executive committee and director emoluments continued
The table below reflects the short- and long-term incentive payments for the Transnet Exco for the reporting year:
KV Reddy10
—
—
—
—
Xoliswa Mpongoshe4
—
—
—
—
T Majoka7, 10
—
—
—
—
PPJ Derby1
—
—
—
—
M Phillips7, 8
—
—
—
—
K Phihlela7
—
—
—
—
S Khathi7
—
—
—
—
MD Gregg-Macdonald2, 3, 9
—
—
—
—
K Ngema6, 7, 8
—
—
—
—
P Munyai8
—
—
—
—
BL Kgomo8, 12
—
—
—
—
V Nemukula8
—
—
—
—
N Dlamini1, 8
—
—
—
—
A Shaw8
—
—
—
—
S Coetzee8
—
—
—
—
B Kani8
—
—
—
—
S Mzimela8
—
—
—
—
R Mills8
—
—
—
—
V Dube6, 8
—
—
—
—
M Silinga8
—
—
—
—
K Phahlamohlaka8
—
—
—
—
L Sesoko7, 10
—
—
—
—
X Ntshingila5, 7
—
—
—
—
T Siyaya5, 6, 7
—
—
—
—
IK Matsheka11
—
—
—
—
S Khan11
—
—
—
—
DJ Mdaki5,11
—
—
—
—
Total
—
—
—
—
*
Included in trade payables, accruals and contract liabilities (refer note 28).
1
Group executives who are members of the Board of directors.
2
Group executives who were members of the Board of directors.
3
Includes settlement in respect of service termination.
4
Member of Exco for 1 month of the financial year.
5
Acted as Exco member during the financial year.
6
Includes voluntary severance package benefit.
7
Acted as Exco member in the prior financial year.
8
Appointed as Exco member during the previous financial year.
9
Acted as Group Chief Financial Officer from 1 April to 30 June 2020, and appointed as Group Treasurer from 1 July to 19 October 2020.
10
Left Exco during the prior financial year.
11
Appointed as Exco member during the financial year.
12
Mr BL Kgomo passed away in July 2021.
118119
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
38. Group executive committee and director emoluments continued
The table below depicts the actual remuneration for the Transnet non-executive directors for the reporting year:
P Molefe (Chairperson)
1 329
—
1 329
1 278
LL Von Zeuner
917
—
917
840
DC Matshoga
599
—
599
575
UN Fikelepi
699
—
699
671
GT Ramphaka
699
—
699
671
OM Motaung1
—
—
—
287
FS Mufamadi
699
—
699
671
AP Ramabulana
599
—
599
575
ME Letlape
798
—
798
834
Total
6 339
—
6 339
6 402
1
Advocate OM Motaung passed away in September 2020.
39. Restatements
The following restatements to the prior year financial results were made as follows:
Investment property fair value error correction
In the current year, the Group performed an external valuation of investment property and in assessing the change in fair value for certain port
related properties, identified an error relating to the prior period fair value of these properties, which resulted in a decrease in fair value of R416
million for the financial year ended 31 March 2021, and an additional R807 million decrease in fair value in previous financial periods, with a
corresponding decrease in investment property, as detailed below.
Property plant and equipment capital work in progress (CWIP) impairment error correction
In the current year, the Group performed an assessment of CWIP balances to ensure the amounts are recoverable. Based on the assessment,
management concluded there was evidence available in the prior year that certain amounts included in CWIP should have been impaired by
R25 million for the financial year ended 31 March 2021, with an additional R528 million impairment relating to previous financial periods and a
corresponding decrease in the CWIP balance, as detailed below.
The restatement had the following impact on the financial statements
(8 375)
Loss for the year as previously reported
(8 386)
(441)
Net effect of restatements
(441)
(416)
Investment property fair value error correction
(416)
(25)
Property plant and equipment CWIP impairment error correction
(25)
93
Tax effect of restatements
93
(8 723)
Restated net loss attributable to the equity holder
(8 734)
(348)
Increase in loss for the year
(348)
39. Restatements continued
131 503
129 190
129 323
131 627
(1 335)
(1 776)
Net effect of restatements
(1 776)
(1 335)
(807)
(1 223)
Investment property fair value error correction
(1 223)
(807)
(528)
(553)
Property plant and equipment CWIP impairment error correction
(553)
(528)
181
274
Tax effect of restatements
274
181
130 349
127 688
Restated equity attributable to the shareholder
127 821
130 473
284 769
292 774
292 774
284 769
285 297
293 327
As previously reported
293 327
285 297
(528)
(553)
Effect of restatement relating to CWIP impairment error correction
(553)
(528)
17 143
16 506
16 506
17 143
17 950
17 729
As previously reported
17 729
17 950
(807)
(1 223)
Effect of restatement relating to fair value error correction
(1 223)
(807)
40. Going concern
The consolidated financial statements are prepared on the going-concern basis. In undertaking the going concern assessment for the
foreseeable future, the directors have considered and evaluated the following:
•
Financial performance and projections;
•
Current economic factors;
•
Funding considerations;
•
Solvency and liquidity considerations;
•
Economic regulation risks;
•
Current litigation matters;
•
Contingent liabilities and post balance sheet events; and
•
Counter party risk.
The key features of this assessment are summarised as follows:
Financial performance
Transnet performance for the 2021/22 financial year (FY) improved from the prior financial year performance but was met with unexpected
internal and external challenges as it began paving the way towards pre-pandemic recovery. These challenges placed great strain on
operations while negatively impacting performance; rising security incidents mainly cable theft and vandalism of rail and pipeline infrastructure,
and an IT security breach and related challenges which largely impacted port and rail operations. In spite of these challenges, the business
reported improvements in revenue (+1,8%) and EBITDA (+20,5%) from the prior financial year, with gearing improving to 45,5% and the cash
interest cover also improving to 2,6 times, with both ratios achieving loan covenant requirements.
Projections
The 2022/23 Corporate Plan depicts an improvement in financial performance as the economic environment returns to pre-pandemic conditions
supported by the end of the National State of Disaster. Financial performance is projected to stabilise in 2023/24 FY and accelerate from
2024/25 FY, warranted by the volume recovery and growth with the resultant revenue improvement. The budget is premised on zero and driver-
based principles.
The capital investment plan is anticipated to increase the asset base over the Corporate Planning period by R98,9 billion. A net increase in
assets is projected at R26,0 billion after depreciation and amortisation coupled with the sale of wagons and other assets in the formation of
PSPs. The return on invested capital is anticipated to grow to 6,4% from the 2021/22 FY to the 2026/27 FY. To preserve liquidity, new
expansion projects on the horizon will be funded from alternative funding sources and through segment partnering strategies.
120121
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statementsfor the year ended 31 March 2022
40. Going concern continued
Funding considerations
Transnet expects continued access to debt capital markets, primarily through the Domestic Medium-Term Note (DMTN) programme, and
bilateral long-term loans to satisfy its funding requirements. Transnet will continue to utilise the lead arranger on the DMTN programme to
assist the company in executing drawdowns under the programme. A lead arranger has also been appointed for the GMTN programme and
preparations for a drawdown under the programme are ongoing depending on market conditions. Transnet also concluded negotiations with
an international commercial bank for a syndicated loan facility in June 2022. Furthermore, Transnet concluded a bridge-to-bond facility based
on the GMTN programme in July 2022.
All the required waivers from affected lenders relating to the loan covenant breaches reported in the prior financial year have been received,
with all matters appropriately closed. The Moody's BCA downgrade loan covenant breach was appropriately resolved in June 2022.
Litigation, contingent liabilities and post balance sheet events
The directors evaluated all significant matters, including ongoing legal proceedings and contingent liabilities with any developments during the
post-reporting period and assessed their impact on the liquidity and solvency of the Group. The Group does not expect a negative impact on its
funding ability.
Conclusion
After performing the assessment and considering all associated risks, the directors believe that there are currently no material uncertainties
relating to events or conditions which may cast significant doubt on the entity’s ability to continue as a going concern and thus the directors
believe that Transnet will be a going concern in the foreseeable future. For this reason, they continue to adopt the going concern assumption in
preparing the financial statements of Transnet SOC Ltd.
41. Events after the reporting period date
Impact of adverse weather and flooding in KwaZulu Natal Province on Transnet's operations
In the month of April 2022, most parts of KwaZulu-Natal experienced extreme storms and heavy rainfall which led to widespread disruptions
and regrettably a loss of lives. Transnet was not spared and the immediate focus was to ensure the safety of people, and the reinstatement
of operations. Notable damage to assets occurred at Transnet Freight Rail, Transnet Engineering, Transnet National Ports Authority and
Transnet Property.
The estimated financial impact is under assessment and will be accounted for in the 2023 reporting period. Further details will be provided
once the financial impact of the adverse weather and flooding in KwaZulu-Natal province has been finalised or determined with a greater
degree of certainty.
Annual financial statements
Abbreviations and acronymns
Abbreviations and acronyms
AFLAC
American Family Life Assurance Co.
AGSA
Auditor-General of South Africa
Aids
Acquired immune deficiency syndrome
B-BBEE
Broad-Based Black Economic Empowerment
bp
Basis point
BTMU
Bank of Tokyo-Mitshibishi UFJ, Ltd (Japan)
CGT
Capital gains tax
CGU
Cash generating unit
CIC
Cash interest cover
CIDB
Construction Industry Development Board
CIPC
Companies and Intellectual Property Commission
CPI
Consumer price index
CTCT
Cape Town Container Terminal
CVA
Credit valuation adjustment
DCF
Discounted cash flows
DCT
Durban Container Terminal
DIFR
Disabling injury frequency rate
DMTN
Domestic medium-term note
DOA
Delegation of authority
DoT
Department of Transport
DPE
Department of Public Enterprises
DVA
Debit valuation adjustments
EBITDA
Earnings before interest, tax, depreciation
and amortisation
Exco
Executive committee
FRMF
Financial risk management framework
FVTPL
Fair value through profit or loss
FVTOCI
Fair value through other comprehensive income
GDP
Gross domestic product
GFB
General freight business
GMTN
Global medium-term note
GRAP
Generally recognised accounting practice
GTK
Gross tonnage kilometer
HIV
Human immunodeficiency virus
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standards
ISA
International Standards on Auditing
JIBAR
Johannesburg Interbank Average Rate
JMoA
Joint memorandum of agreement
JPY
Japanese Yen
KPI
Key performance indicator
LIBOR
London Interbank Offered Rate
NCT
Ngqura Container Terminal
Nersa
National Energy Regulator of South Africa
NMPP
New multi product pipeline
NSR
National scale rating
PAA
Public Audit Act of South Africa, No 25 of 2004
PFMA
Public Finance Management Act, No 1 of 1999
Ports Act
National Ports Act, No 12 of 2005
PPM
Procurement Procedure Manual
PPE
Property, plant and equipment
PPPFA
Preferential Procurement Policy Framework Act
Prasa
Passenger Rail Agency of South Africa
RFI
Request for information
RSR
Railway Safety Regulator
Rumo
Rumo Logistica Operadora Multi-model S.A.
S&P
S&P Global Ratings
SACP
Stand-alone credit profile
SAMSA
South African Maritime Safety Authority
SAPS
South African Police Service
SARS
South African Revenue Service
SATS
South African Transport Services
SD
Supplier development
SOC
State-owned company
SP
Special meeting
TEU
Twenty-foot equivalent unit
TMPS
Total measured procurement spend
TN
Transnet bond
TNZA
Transnet Rand bond
TNFU
Transnet floating rate unlisted bond
TSDBF
Transnet Second Defined Benefit Fund
TTPF
Transport Pension Fund: Transnet Sub-fund
USD
US Dollar
WACC
Weighted average cost of capital
WACD
Weighted average cost of debt
ZAR
South African Rand
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Annual financial statements
Glossary of terms
Glossary of terms
Cash interest cover (times)
Cash generated from operations after working capital changes
divided by net finance costs (net finance costs include finance
costs, finance income and capitalised borrowing costs from the
cash flow statement).
Debt (for gearing calculation)
Long-term borrowings, short-term borrowings, employee benefits,
derivative financial liabilities plus overdraft less other short-term
investments, less derivative financial assets and less cash and
cash equivalents.
EBITDA
Profit/(loss) from operations before depreciation, derecognition,
amortisation, impairment of assets, dividend received, post-
retirement benefit obligation (expense)/income, fair value
adjustments, income/(loss) from associates and net finance costs.
EBITDA margin
EBITDA expressed as a percentage of revenue.
Equity
Issued capital and reserves.
Gearing
Debt (as define above) expressed as a percentage of the sum
of debt and equity (as defined above).
Headline earnings
As defined in Circular 2/2015, issued by the South African
Institute of Chartered Accountants, all items of a capital nature
are separated from earnings (by headline earnings).
Operating profit
Profit/(loss) from operations after depreciation, derecognition and
amortisation but before impairment of assets, dividends received,
post-retirement benefit obligation (expense)/income, fair value
adjustments, income/(loss) from associates and net finance costs.
Operating profit margin
Operating profit expressed as a percentage of revenue.
Return on total average assets
Operating profit expressed as a percentage of total average
assets, as defined below (total average assets exclude
capital work-in-progress).
Total assets
Non-current and current assets.
Total average assets
Total assets, where ‘average’ is equal to the total assets at the
beginning of the reporting year plus total assets at the end of the
reporting year, divided by two.
Total debt
Non-current and current liabilities.
Annual financial statements
Corporate information
Corporate information
Transnet SOC Ltd
Incorporated in the Republic of South Africa.
Registration number 1990/000900/30.
138 Eloff street
Braamfontein
Johannesburg
2000
PO Box 72501
Parkview
Johannesburg
South Africa
2122
Executive directors
Ms PPJ Derby
(Group Chief Executive)
Ms NS Dlamini
(Group Chief Financial Officer)
Independent non-executive directors
Dr PS Molefe (Chairperson)
Ms UN Fikelepi
Ms ME Letlape
Ms DC Matshoga
Mr AP Ramabulana
Ms GT Ramphaka
Mr LL von Zeuner
Prof FS Mufamadi
Group Company Secretary
S Bopape
138 Eloff street
Braamfontein
Johannesburg
2000
PO Box 72501
Parkview
Johannesburg
South Africa
2122
Auditors
Auditor-General of South Africa
4 Daventry Street,
Lynnwood Bridge Office Park
Lynnwood Manor
Pretoria, SA
Postal address
PO Box 446
Pretoria
0001
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