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ANNUAL FINANCIAL STATEMENTS 2023
The 2023
Integrated Report
Annual financial statements
R E I N V E N T
F O R G R O W T H
ANNUAL FINANCIAL STATEMENTS 2023
is the Company’s primary
report to all stakeholders.
The 2023 Annual Financial
Statements
include reports of the
directors and independent
auditor.
FORWARD-LOOKING INFORMATION
All references to forward-looking information and targets
the 2023 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 2023 Annual Financial
Please provide written feedback to Kilford Gondo.
kilford.gondo@transnet.net
PERFORMANCE HIGHLIGHTS
Performance highlights
* Including working capital changes.1 Including working capital changes.
Annual financial statements
2
3
Revenue increased by 0,6% to
Cash generated from operations
Net operating expenses increased by
Gearing of 43,6% and cash interest
2,5% of labour costs spent on training,
EBITDA decreased by 2,1% to
LTIFR performance of 0,66, which is
Net loss for the year of R5,7 billion
Level 2 B-BBEE certification and spend
Capital investment increased by
Group Company Secretary certificate
Approval of the annual financial statements
for the year ended 31 March 2023
Group Company Secretary certificate
for the year ended 31 March 2023
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 page 26. 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 19.
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 page 26.
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 2023, 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 2023 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.
A Sangqu
Chairperson
PPJ Derby
Group Chief Executive
NS Dlamini
Group Chief Financial Officer
30 August 2023
Johannesburg
I hereby certify that the Company has filed all such returns and
notices for the year ended 31 March 2023 with the Companies and
Intellectual Property Commission, as required in terms of section
88(2)(e) of the Companies Act, and that all such returns are true,
correct and up to date.
S Bopape
Group Company Secretary
30 August 2023
Johannesburg
Annual financial statements
4
5
Report of the auditor-general to Parliament
on Transnet SOC Limited
for the year ended 31 March 2023
Report on the audit of the consolidated and
separate financial statements
Opinion
I have audited the consolidated and separate financial statements
of Transnet SOC Limited (Transnet) and its subsidiaries (the Group)
set out on pages 30 to 123, which comprise the consolidated and
separate statements of financial position as at 31 March 2023,
the consolidated and separate income statements and statements
of 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
present fairly, in all material respects, the financial position of
Transnet and the Group as at 31 March 2023, and their financial
performance and cash flows for the year then ended in accordance
with 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).
Basis for opinion
I conducted my audit in accordance with the International Standards
on Auditing (ISAs). My responsibilities under those standards are
further described in the responsibilities of the auditor-general 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
Key audit matters are those matters that, in my professional
judgement, were of most significance in 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.
Key audit matter
How the matter was addressed in the audit
Revaluation of port facilities
Port facilities are measured at revalued amounts as set out
The Group applies the valuation techniques noted below in
•
Depreciated optimised replacement cost (DORC); and
•
Discounted cash flows (DCF).
Port infrastructure assets
The DCF methodology was considered by management as
The DORC model is used every three years to test the
As disclosed in note 9, the discounted cash flows resulted in
Management has been consistent in the use of the discounted
I performed the following procedures, on the significant management
Port infrastructure assets
•
I appointed independent and competent valuation experts to
•
I assessed the independent valuation experts’ competence, experience,
•
I performed the comparison of the current year and prior year DCF
•
I benchmarked management’s significant assumptions related to
•
I assessed the reasonableness of the projected volumes against the
•
I assessed the unsystematic risk premium for management initiatives
Annual financial statements
Independent auditor’s report
6
7
Key audit matter
How the matter was addressed in the audit
Management’s estimates as they relate to future cash flows
•
volumes that are based on management’s corporate plan;
•
rebased tariffs that are based on approved tariffs from the
•
estimates of sustaining and operating expenditure that is
•
inflation rate;
•
GDP growth rate;
•
projection of cash flows beyond the foreseeable future; and
•
prevailing after tax weighted average cost of capital (WACC)
There is a high level of estimation and uncertainty regarding
Port operating assets
The depreciated optimised replacement cost was used as
As disclosed in note 9, the index valuation resulted in a
Due to the variables used in the models, which are complex, and
There is a high level of estimation and uncertainty regarding
•
Transnet’s policy is to use the WACC calculation result provided by the
•
I assessed the reasonableness of the projected volumes against
•
I assessed the current capacity of the various revenue streams to
•
I found that management’s valuation was consistent with IFRS 13
Material misstatements were identified and adjustments were processed
Port operating assets
During the third-party valuation for March 2023, the DORC method was
•
I assessed the appropriateness of the assumptions used and whether
•
I assessed the management valuation expert’s competence, experience,
•
I evaluated the completeness, accuracy and adequacy of the data used
I evaluated the valuation methodology and disclosure, considering the
Report of the auditor-general to Parliament
on Transnet SOC Limited
for the year ended 31 March 2023
Annual financial statements
Independent auditor’s report
8
9
Key audit matter
How the matter was addressed in the audit
Revaluation of rail infrastructure assets
Rail infrastructure is measured at revalued amounts as set out
The Group applies the valuation methods noted below in
•
DORC; and
•
DCF.
The DCF methodology was considered by management as the
The DORC model is used every three years to test the
As disclosed in note 9, the discounted cash flows resulted in fair
Management has been consistent in the use of the discounted
For the rail infrastructure, the discounted cash flow calculation
The DCF model involves the discounting of future cash flow
Management’s estimates as they relate to future cash flows
•
rail volumes that are based on management’s corporate plan;
•
rebased rail tariffs that are based on management’s corporate
•
estimates of sustaining and operating expenditure that are
•
inflation rate;
•
GDP growth rate;
•
projection of cash flows beyond the foreseeable future; and
•
prevailing after tax WACC rate.
There is a high level of estimation and uncertainty regarding the
This area was also significant to the audit due to the materiality
I performed the following procedures, on the significant management
•
I appointed independent and competent valuation experts to assess
•
I assessed the independent valuation experts’ competence, experience,
•
I performed the comparison of the current year and prior year DCF
•
I benchmarked management’s significant assumptions related to
•
I assessed the reasonableness of the projected volumes against
•
I assessed the unsystematic risk premium for management initiatives
•
I assessed the reasonableness of the rebased tariff increases against
•
I assessed the current capacity of rail infrastructure, projected future
•
I assessed the forecasted growth in volumes to ensure it is limited
•
I recalculated the WACC, taking into account independently obtained
•
I assessed and evaluated management’s basis for the assumptions
•
I assessed whether the presentation of and disclosures in the financial
Material misstatements were identified and adjustments were
Key audit matter
How the matter was addressed in the audit
Valuation of investment property
Transnet investment property is measured using the fair value
The fair value of the Group’s investment property was
The fair value of the Group’s investment properties at 31 March
The key inputs into the fair value model which are subject to
Unsubstantiated assumptions and estimates could give rise to
Management is required to make several significant
There is a high level of estimation and uncertainty regarding
My audit procedures included the following:
•
I obtained and documented an understanding of relevant controls in
•
I appointed independent experts, who discussed and challenged
•
I assessed the independent valuation experts’ competence, experience,
•
I reviewed the valuation reports for the properties valued by the
•
I confirmed that the valuation approach used by management was
•
I tested the key assumptions used in determining fair value in respect
–
Confirmed the rental income used in forecasts to underlying tenant
–
Assessed the reasonability of the discount and capitalisation rates
•
I assessed the reasonableness and accuracy of the apportionment
•
I assessed whether the disclosures in the financial statements are
Material misstatements were identified and adjustments were processed
Report of the auditor-general to Parliament
on Transnet SOC Limited
for the year ended 31 March 2023
Annual financial statements
Independent auditor’s report
10
11
Key audit matter
How the matter was addressed in the audit
Revaluation of pipeline network assets
Pipeline networks are measured at revalued amounts as set
Formal revaluations are performed every three years by
The Group applies the following valuation techniques in
•
Depreciated replacement cost (DRC); and
•
DCF.
For the financial year ended 31 March 2023, the revaluation
The index valuation that was applied to assets in the old pipeline
The new pipeline network assets remained at carrying value as
There is a high level of estimation and uncertainty regarding the
My audit procedures included the following:
•
I reviewed the WACC calculation policy and noted that the methodology
•
I reviewed the market data and calculation for consistency between
•
I reviewed the market inputs used to derive the WACC 2023 calculation
•
I reviewed the key assumptions (risk free rate, market risk premium,
•
I satisfied myself that the WACC rates are reasonable and have been
•
For the index valuation, I assessed the reasonableness and
I did not identify material discrepancies in management judgements and
Valuation of derivative financial assets and financial liabilities
Transnet has foreign-denominated loans and bonds and is
Transnet has elected to apply hedge accounting in terms of
Complex and significant assumptions are used by management
The auditing of the application and accounting for hedging
In evaluating the valuation of derivative financial assets and financial
•
Obtaining an understanding of the Group’s processes to estimate the
•
I assessed the competence, capabilities and objectivity of management’s
•
With the assistance of an independent and competent actuarial expert,
•
I reviewed management’s prepared IFRS 9 hedge effectiveness tests
•
I assessed the adequacy and completeness of disclosures in the annual
I considered the Group’s hedging instruments fair valuations and
Key audit matter
How the matter was addressed in the audit
Valuation of decommissioning and environmental liabilities
Transnet’s decommissioning and environmental liabilities,
The provisions are highly judgemental, as they are calculated
The decommissioning and environmental provisions are also
Management is required to make a number of significant
There is a high level of estimation uncertainty regarding the
In evaluating the valuation of decommissioning and environmental
•
I appointed an expert to assist in auditing the integrity of the
•
I assessed the independent expert’s competence, experience,
•
I identified the cost assumptions that have the most significant impact
•
I verified the completeness of the data by comparing it with work
•
I assessed whether decommissioning and environmental provision
•
I confirmed that the approach used by management was appropriate
•
I assessed the adequacy of the disclosures made in the financial
I did not identify material discrepancies in management’s judgements and
Report of the auditor-general to Parliament
on Transnet SOC Limited
for the year ended 31 March 2023
Consequently, I did not audit the disclosure of the irregular, fruitless
and wasteful expenditure and I do not express any assurance on the
amounts of irregular, fruitless and wasteful expenditure as disclosed
in the integrated report.
During the audit of the compliance with applicable legislation as
outlined in this report, I have identified material findings in the
area of procurement and contract, expenditure management and
consequence management. The internal controls implemented
by management were not effective as they did not prevent and
detect instances of material non-compliance with procurement and
contract management prescripts. The instances of the material non-
compliance identified further indicate that the irregular expenditure
disclosed in the integrated annual report may not be complete due
to other instances of non-compliance identified through the audit
process which resulted in irregular expenditure.
Responsibilities of the accounting authority
for the consolidated and separate financial
statements
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.
Responsibilities of the auditor-general 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
In accordance with the Public Audit Act 25 of 2004 (PAA) and the
general notice issued in terms thereof, I must audit and report on
the usefulness and reliability of the reported performance against
predetermined objectives for selected objectives presented
in the annual performance report. The accounting authority is
responsible for the preparation of the annual performance report.
I selected the following objectives presented in the annual
performance report for the year ended 31 March 2023 for
auditing. I selected objectives that measure the public entity’s
performance on its primary mandated functions and that are of
significant national, community or public interest.
Emphasis of matters
I draw attention to the matters below. My opinion is not modified
in respect of these matters.
Events after the reporting date
I draw attention to note 40 in the consolidated and separate
financial statements, which discloses material non-adjusting
subsequent events. This includes a debt service account
agreement with a lender, changes in the board of directors
and a settlement reached with one of the original equipment
section 55(2)(b)(ii) and (iii) of the PFMA, and treasury regulation
28.2.1. However, commencing with the prior year end of 31 March
2022, 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 in pages 123 to 129 of the integrated report
of the entity.
KPA 1: Improve operational efficiencies and reduced
safety and security risks
KPA 2: Accelerate strategic initiatives to improve
commercial performance
I evaluated the reported performance information for the selected
objectives against the criteria developed from the performance
management and reporting framework, as defined in the general
29Reduce the total cost of logistics as a percentage of
transportable GDP; and
Effect and accelerate modal shift by maximising the role of rail
in the national transport task.
29Leverage the private sector in the provision of both
infrastructure and operations where required.
•
the targets can be linked directly to the achievement of the
indicators and are specific, time bound and measurable to
ensure that it is easy to understand what should be delivered
manufacturers (OEM).
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
In the current year audit, I requested management to audit the
disclosure of irregular, fruitless and wasteful expenditure disclosed
in the integrated report through the normal audit process to
ensure a risk-based audit approach and to enable transparency
and accountability to those charged with governance and oversight
by reporting on the observation from my audit in this section of
the audit report. I could not obtain sufficient and appropriate
audit evidence to conduct information to conduct the audit of the
irregular, fruitless and wasteful expenditure as disclosed in the
integrated report due to a difference of opinion with management
on the nature of the audit engagement to be undertaken from the
previous year.
notice. When an annual performance report is prepared using these
criteria, it provides useful and reliable information and insights to
users on the public entity’s planning and delivery on its mandate
and objectives.
I performed procedures to test whether:
•
the indicators used for planning and reporting on performance
can be linked directly to the public entity’s mandate and the
achievement of its planned objectives;
•
the indicators are well defined and verifiable to ensure that they
are easy to understand and applied consistently and that I can
confirm the methods and processes to be used for measuring
achievements;
and by when, the required level of performance as well as how
performance will be evaluated;
•
the indicators and targets reported on in the annual performance
report are the same as what was committed to in the approved
initial or revised planning documents;
•
the reported performance information isin the annual performance
report in the prescribed manner; and
•
there is adequate supporting evidence for the achievements
reported and for the reasons provided for any over or under
achievement of targets.
I performed the procedures for the purpose of reporting material
findings only; and not to express an assurance opinion.
Annual financial statements
Independent auditor’s report
12
13
Key audit matter
How the matter was addressed in the audit
Impairment of rolling stock assets
The determination of impairment of PPE requires judgement and in
The derailments, vandalism and theft or a burn out of rolling stock
The key inputs in whether an item of rolling stock assets is impaired are
Unsubstantiated assumptions and estimates (whether damage is major
This movement was significant and therefore required extensive
As a result, I have spent significant audit effort, including the time
In assessing the impairment of rolling stock I performed the
•
I reviewed the impairment guidelines against the fair
•
I relied on the management expert to assess whether damages
•
I assessed the independent expert’s competence, experience,
•
I verified the completeness of the impairment by tracing
•
I assessed the indicators of impairment relating to rolling stock
Material misstatements were not identified on the impairment
Report of the auditor-general to Parliament
on Transnet SOC Limited
for the year ended 31 March 2023
The material findings on the performance information of the
selected objectives are as follows:
KPA 1: Improve operational efficiencies and
reduced safety and security risks
Ship turnaround time: DCT Pier 1
An achievement of 75 hours was reported against a target of less
than or equal to 55 hours. I could not determine if the reported
achievement was correct, as the processes established to
consistently measure and report achievements were inadequate.
Adequate supporting evidence was also not provided for auditing.
Consequently, the reported achievement might be more or less
than reported and was not reliable for determining if the target
had been achieved.
Ship turnaround time: DCT Pier 2
An achievement of 93 hours was reported against a target of less
than or equal to 53 hours. I could not determine if the reported
achievement was correct, as the processes established to
consistently measure and report achievements were inadequate.
Adequate supporting evidence was also not provided for auditing.
Consequently, the reported achievement might be more or less than
reported and was not reliable for determining if the target had been
achieved.
Reduction in security incidents – Transnet
Freight Rail
An achievement of 25% was reported against a target of greater
than or equal to 10%. The audit evidence obtained indicated
that not all security incidents that occurred during the current
financial year were recorded. Consequently, the actual reported
achievement is overstated and I could not determine the extent of
the actual achievement by alternative means.
Other matters
I draw attention to the matters below.
Achievement of planned targets
The annual performance report includes information on reported
achievements against planned targets and provides explanations
for over and under achievements. This information should be
considered in the context of the material findings on the reported
performance information.
The public entity plays a key role in delivering services to South
Africans as its mandate is to assist in lowering the cost of doing
business in South Africa, enabling economic growth and ensuring
security of supply through providing appropriate port, rail and
pipeline infrastructure in a cost-effective and efficient manner,
within acceptable benchmarks.
Overall, there has been a decline in the entity’s performance, as the
entity did not achieve the majority of their planned performance
targets for the period under review. The entity only managed
to achieve 26.3% of its annual targets in the current year when
compared to 38,6% achieved in the prior year. This represents a
decline in performance year-on-year of 12,3%. In comparing the
performance year on year, cognisance was taken that there was a
change in the key performance areas when comparing the current
year’ Shareholder’s Compact to the prior year’s Compact.
The main root causes for non-achievement are attributed to
operational challenges due to availability of rolling stock, security
incidents, strike action, power outages, customer cancellations
and adverse weather conditions and equipment challenges as
well as delays in concluding requests for proposals with private
partnerships.
Overall, the entity has not achieved on the planned service delivery
objectives and this had a direct impact on the entity’s mandate
of lowering the cost of doing business in South Africa through
providing cost effective and efficient logistical solutions, it
hampers economic growth, and impedes the entity’s ability to
effectively compete in the global market. The non-achievement of
planned targets further contributes to increased reliance on road
transportation, leading to higher costs, road congestion, damage
to road infrastructure and negative environmental impacts.
It is critical for the accounting authority to ensure that the current
operational challenges that prevent the entity from delivering on
Through an established AGSA process, I selected requirements
in key legislation for compliance testing that are relevant to
the financial and performance management of the public entity,
clear to allow consistent measurement and evaluation, while
also sufficiently detailed and readily available to report in an
understandable manner. The selected legislative requirements are
included in the annexure to this auditor’s report.
The material findings on compliance with the selected legislative
requirements, presented per compliance theme, are as follows:
Annual financial statements, performance
reports and annual reports
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 on borrowings, property, plant
and equipment, non-current assets classified as held for sale, and
lease commitments identified by the auditors in the submitted
financial statements were corrected, resulting in the financial
statements receiving an unqualified audit opinion.
Revenue management
Effective and appropriate steps were not taken to collect all
revenue due, as required by section 51(1) (b) (i) of the PFMA.
The annual performance report includes the following service delivery achievements against planned targets:
its primary objective are addressed through a turnaround plan,
which should place significant focus on measurable and time bound
action plans and seeks to address the root causes that impede the
entity’s ability to achieve on its primary objectives.
The accounting authority should evaluate the effectiveness of the
existing performance monitoring processes and place emphasis
on enhancing the in-year monitoring processes to enable effective
progress implementation and tracking of planned targets in
a manner that enables timeous implementation of corrective
measures to improve performance outcomes.
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 1 – Improve
operational efficiencies and reduced safety and security risks.
Management did not correct all of the misstatements and I
reported material findings in this regard.
Report on compliance with legislation
In accordance with the PAA and the general notice issued in terms
thereof, I must audit and report on compliance with applicable
legislation relating to financial matters, financial management and
other related matters. The accounting authority is responsible for
the public entity’s compliance with legislation.
I performed procedures to test compliance with selected
requirements in key legislation in accordance with the findings
engagement methodology of the Auditor-General of South
Africa (AGSA). This engagement is not an assurance engagement.
Accordingly, I do not express an assurance opinion or conclusion.
Expenditure management
Effective and appropriate steps were not taken to prevent
irregular expenditure 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. Irregular
expenditure was identified during the audit process on awards
made during the period 1 April 2022 to 31 March 2023. The
irregular expenditure disclosed in the integrated annual report
may not be complete.
Procurement and contract management
I was unable to obtain sufficient appropriate audit evidence that
some of the 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.
A similar limitation was also reported in the prior year.
I was unable to obtain sufficient appropriate audit evidence that
the deviation was in line with the circumstances provided in the
SCM policy under which the procurement may occur as required by
PFMA instruction note 3 of 2021/22 par. 4.3 and 4.4.
I was unable to obtain sufficient appropriate audit evidence
that the deviation process followed in respect of identifying
prospective suppliers was in line with the process prescribed
in the institution’s SCM policy as required by PFMA instruction
note no. 3 of 2021/22 par. 4.4.(d).
I was unable to obtain sufficient appropriate audit evidence that
some of the contracts were awarded to bidders in an economical
manner and/or prices for the goods or services were reasonable as
required by PFMA 57(b).
Annual financial statements
Independent auditor’s report
14
15
Key indicators not achieved
Planned target
Reported achievement
KPA 1: Improve operational efficiencies and reduced safety and security risks
Targets achieved: 22%
1.1 Export coal (RBCT)
≥ 61,4 mt
48,7 mt
Not achieved
1.2 Export manganese
≥ 15,9 mt
14,1 mt
Not achieved
1.3.1 Wagon cycle time export coal (RBCT)
≤ 64 hours
88 hours
Not achieved
1.4.1 Ship turnaround time: DCT Pier 1
≤ 55 hours
75 hours
Not achieved
1.4.2 Ship turnaround time: DCT Pier 2
≤ 53 hours
93 hours
Not achieved
1.5 Container moves per ship working hour – DCT Pier 1
≥ 48 moves per hour
39 moves per hour
Not achieved
1.6.2 Transnet Pipelines: Reduction in security incidents
≥ 15%
-25,3 %
Not achieved
KPA 2: Accelerate strategic initiatives to improve commercial performance
Targets achieved: 0%
2.1 Selection of PSP partner for the Ngqura Container Terminal
31 October 2022
None
Not achieved
2.2 Selection of PSP partner for the Durban Container Terminal Pier 2
31 October 2022
None
Not achieved
2.3 RFP for a partnership in City Deep Terminal issued to the market
31 October 2022
None
Not achieved
2.4 RFP for a partnership in Kaalfontein Terminal issued to the market
31 October 2022
None
Not achieved
2.5 Disposal of non-core assets: disposal of approximately 6 500
Report of the auditor-general to Parliament
on Transnet SOC Limited
for the year ended 31 March 2023
I was unable to obtain sufficient appropriate audit evidence that
some of the contracts and quotations were awarded to suppliers
based on preference points that were allocated and calculated in
accordance with the requirements of the PPPFA and Preferential
Procurement regulation. Similar non-compliance was also reported
in the prior year.
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 section 11 of PPR 2017.
Similar non-compliance was also reported in the prior year.
I was unable to obtain sufficient appropriate audit evidence that
some of the 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 the
2017 Preferential Procurement Regulation 5(1) and (3).
Some of the tenders that failed to achieve the minimum
qualifying score for functionality criteria were not disqualified as
unacceptable in accordance with 2017 Preferential Procurement
Regulation 5(6).
Some of the tenders that achieved the minimum qualifying score
for functionality criteria were not evaluated further in accordance
with 2017 PPR 5(7).
I was unable to obtain sufficient appropriate audit evidence that
some of the contracts and quotations were awarded to bidders
based on pre-qualification criteria that were stipulated in the
original invitation for bidding and quotations, in contravention of
the 2017 Preferential Procurement Regulation 4(1) and 4(2).
I was unable to obtain sufficient appropriate audit evidence that
some of the tender requirements for contracts above R30 million
included included a condition for mandatory subcontracting to
advance designated groups, as required by the 2017 Preferential
Procurement Regulation 9(1).
Consequence management
Disciplinary steps were not taken against some of the officials
who incurred or permitted irregular expenditure, as required by
section 51 (1) (e) (iii) of the PFMA.
Other information
The accounting authority is responsible for the other information
included in the annual financial statements, which includes
the report of directors, the audit committee’s report and the
company secretary’s certificate, as required by the Companies
Act. The other information also includes the integrated report. The
other information referred to 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 consolidated and separate financial statements,
the report on the audit of the annual performance report and
the report on compliance with legislation, do not cover the other
information included in the annual report and I do not express an
audit opinion or any form of assurance conclusion on it.
My responsibility is to read this other information and, in doing
so, consider whether it 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 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, annual performance report and
compliance with applicable legislation; however, my objective was
not to express any form of assurance on it.
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.
The action plan developed by the leadership to address actual root
causes for material findings was not effective as repeat findings
were raised during the audit process.
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.
Internal controls designed and implemented to ensure accurate
financial information at Operating Divisional (OD) level were
not effective. 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.
A lack of adequate review of the underlying records from planning
to the reporting phase by management led to the information in
the annual performance report not being useful and reliable as
the reported performance information could not be verified.
The information technology control environment required
improvement as, in some cases, no controls were implemented or
were not sufficient to ensure safeguarding of information, that
only those that require access to systems and data are granted
access, sufficient application system functionality is available to
record changes made to how the systems processes transactions
and defined process are in place for recovering of systems and
data in the event of a disastrous occurrence.
Controls over regular, accurate and complete financial and
performance reports that are supported and evidenced by
reliable information were not adequate as material findings were
identified in the financial statements and annual performance
report submitted for audit.
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 material irregularities as
previously reported in the auditor’s report.
Status of previously reported material
irregularities
Contracts for the lease of heavy duty plant and equipment
awarded to bidders that did not score the highest points
An award of R831 123 000 was made by the public entity in
December 2019 for the l easing 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
should 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 forensic report did not address
the determination of the loss to the entity as a result of the
noncompliance with applicable legislation.
•
The accounting authority took disciplinary steps against the
implicated and written warning letters issued in September 2022.
The accounting authority’s response did not indicate all the
required actions to address the material irregularity, as it did not
include preventing the financial loss, nor recovery of the losses
already suffered by the entity. I notified the accounting authority
on 29 August 2023 of my determination that the actions taken
have not adequately addressed the material irregularity and
requested additional information to enable me to decide on the
course of action to take.
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
likely material financial loss.
The accounting authority was notified of the material irregularity
on 4 August 2021. The following actions have been taken to
address the material irregularity:
•
The accounting authority took disciplinary steps against the
implicated officials through the form of written warning letters
issued in September 2022.
The accounting authority’s response did not indicate all the
required actions to address the material irregularity, as it did not
include preventing the financial loss, nor recovery of the losses
already suffered by the entity. I notified the accounting authority
on 29 August 2023 of my determination that the actions taken
have not adequately addressed the material irregularity and
requested additional information to enable me to decide on the
course of action to take.
Other reports
In addition to the investigations relating to material irregularities,
I draw attention to the following engagements conducted by
various parties. These reports did not form part of my opinion on
the consolidated and separate 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 paper
between 1 January 2023 to 31 March 2023 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. A report was issued to Transnet on 19 August 2023 and
covered the period 1 January 2023 to 31 March 2023.
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 2022 to 31 March 2023 and was issued
to Transnet on 31 July 2023.
At the request of Transnet, a reasonable assurance engagement
was performed on the Transnet National Ports Authority (TNPA)
annual financial statements for the financial year ending 31 March
2023. 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 2023, 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 31 August 2023.
Proclamation 11 of 2018 is investigating an allegation of
contracting for or procurement of goods and services by Transnet
and payment made in respect thereof in a manner that was not fair,
equitable, transparent, competitive or cost effective, conducted
by or facilitated through improper conduct. The investigation is
conducted by the Special Investigating Unit for events that took
place between years 2010 to 2018. The investigation is still in
progress.
Auditor-General
Pretoria
31 August 2023
Annual financial statements
Independent auditor’s report
16
17
Annexure to the auditor’s report
The annexure includes the following:
•
the auditor-general’s responsibility for the audit; and
•
the selected legislative requirements for compliance testing.
Auditor-general’s responsibility for the audit
Professional judgement and professional scepticism
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 selected requirements in key
legislation.
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;
•
conclude on the appropriateness of the use of the going concern
basis of accounting in the preparation of the consolidated and
separate 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 the public entity 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 consolidated and separate financial
statements about the material uncertainty or, if such disclosures
are inadequate, to modify my opinion on the consolidated and
separate 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;
1.
evaluate the overall presentation, structure and
content of the consolidated and separate financial
statements, including the disclosures, and determine whether
the consolidated and separate financial statements represent
the underlying transactions and events in a manner that
achieves fair presentation; and
2.
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.
Legislation
Sections or regulations
Companies Act No. 71 of 2008
Section 30(3)(b)(i); 33(1)(a)
Section 45(2); 45(3)(a)(ii); 45(3)(b)(i); 45(3)(b)(ii); 45(4)
Section 46(1)(a); 46(1)(b); 46(1)(c)
Section 72(4)(a);
Section 75(6)
Section 86(1); 86(4);
Section 88(2)(d)
Section 112(2)(a);
Section 129(7)
Prevention and Combating of Corrupt Activities Act No.12
of 2004 (PRECCA)
Section 34(1)
Companies Regulations
Regulation 30(2); 43(2)(a)
Construction Industry Development Board Act No.38 of 2000
Section 18(1)
(CIDB)
Section 22(3)
CIDB Regulations
CIDB regulation 17; 18(1A)1; 25(1); 25 (5) and 25(7A)
PPPFA
Section 1(i); 2.1(a); 2.1(b); 2.1(f)
PPR 2017
Paragraph 4.1; 4.2
Paragraph 5.1; 5.3; 5.6; 5.7
Paragraph 6.1; 6.2; 6.3; 6.5; 6.6; 6.8
Paragraph 7.1; 7.2; 7.3; 7.5; 7.6; 7.8
Paragraph 8.2; 8.5
Paragraph 9.1; 9.2
Paragraph 10.1; 10.2
Paragraph 11.1; 11.2
Paragraph 12.1 and 12.2
PPR 2022
Paragraph 3.1
Paragraph 4.1; 4.2; 4.3; 4.4
Paragraph 5.1; 5.2; 5.3; 5.4
NT SCM Instruction Note 03 2021/22
Paragraph 4.1; 4.2; 4.2 (b); 4.3; 4.4; 4.4 (c );4.4(d); 4.6
Paragraph 5.4
NT SCM Instruction 4A of 2016/17
Paragraph 6
NT SCM Instruction Note 03 2019/20
Paragraph 5.5.1(iv); 5.5.1(x)
Compliance with legislation – selected legislative requirements
The selected legislative requirements are as follows:
Legislation
Sections or regulations
Public Finance Management Act 1 of 1999 (PFMA)
Section 50(3); 50(3)(a); 50(3)(b)
Section 51(1)(a)(ii); 51(1)(a)(iii); 51(1)(a)(iv); 51(1)(b); 51(1)(b)(i); 51(1)(b)(ii);
51(1)(e)(iii)
Section 52(b)
Section 53(4)
Section 54(2)(c); 54(2)(d)
Section 55(1)(a); 55(1)(b); 55(1)(c)(i)
Section 56
Section 57(b); 57(d)
Section 66(3)(a)
Treasury Regulations for departments, trading entities,
Regulation 29.1.1; 29.1.1(a); 29.1.1(c;); 29.2.1; 29.2.2; 29.3.1
constitutional institutions and public entities (TR)
Regulation 31.2.5; 31.2.7(a)
Regulation 33.1.1; 33.1.3
NT SCM Instruction Note 11 2020/21
Paragraph 3.1; 3.4 (a); 3.4(b); 3.9: 6.1;6.2;6.7
PFMA SCM instruction 08 of 2022/23
Paragraph 3.2
Paragraph 4.3.2; 4.3.3
Competition Act
Section 4(1)(b)(ii)
NT instruction note 4 of 2015/16
Paragraph 3.4
Second amendment of NTI 05 of 2020/21
Paragraph 4.8; 4.9 ; 5.1 ; 5.3
Erratum NTI 5 of 2020/21
Paragraph 1
Paragraph 2
NT instruction note 5 of 2020/21
Paragraph 5.1 and 5.3
Annual financial statements
Independent auditor’s report
18
19
Audit Committee report
Audit Committee report
for the year ended 31 March 2023
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 2023.
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’s performance for the year ended 31 March 2023
improved in certain areas compared to the prior year, in spite
of various challenges and the current economic climate. These
challenges negatively impacted performance and included flooding
in KwaZulu-Natal (KZN), power cuts across the country, the
industrial strike in October 2022, interest rate hikes, and rising
security incidents mainly fuel theft, cable theft and vandalism
of infrastructure. The committee reviewed the performance
information presented.
Transnet reported a loss of R5,7 billion for the financial year (FY).
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.
Overall performance against the Shareholder’s Compact, requires
significant improvement, driven mainly by the 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 has and 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.
Irregular expenditure
On 31 March 2022, National Treasury granted Transnet an exemption
from the specified provisions of the PFMA and the National Treasury
Instruction No 2 of 2019/2020.
The exemption afforded Transnet an opportunity to deal with legacy
challenges mainly in the supply chain management (SCM) environment
by focusing on the implementation of internal control measures that
ensured accurate and complete reporting of irregular and fruitless
and wasteful expenditure (IFWE).
It has also allowed Transnet to report its IFWE in the integrated
report (IR) instead of the annual financial statements (AFS) effective
from the financial years ended 31 March 2022 up to 31 March 2024.
Included in the irregular expenditure (IE) confirmed for the FY2023
is new IE of R556 million (FY2022: R1 117 million, restated) due to
repeat non-compliance with various SCM prescripts. This represents
a 50,2% reduction of new IE.
Notable progress was made in the 2022/23FY PFMA remedial plan
when compared to prior years. The 2022/23FY remedial plan was
tabled at the October 2022 Audit Committee meeting and continues
to be monitored bi-weekly through the PFMA steering committee
chaired jointly by the Group Chief Financial Officer (GCFO) and the
Group Chief Procurement Officer (GCPO). Progress is reported
monthly to the Group Executive Committee (Exco) and quarterly
through the Audit Committee.
The remedial plan includes the following six streams:
1.
Supply chain governance: Overhauling the internal control
environment and improving the delegation of authority to ensure
that delegations are at appropriate levels and are aligned to
legislative requirements;
2.
Procurement operations: Optimising supply chain processes;
3.
Contract management: Implementing effective standard
operating procedures;
4.
People management: Continuous training of employees on PFMA
requirements, revised supply chain internal control system as well
as consequence management;
5.
Systems: Automating supply chain management processes; and
6.
PFMA reporting: Improving reporting capabilities.
Material irregularity
In the 2022/23 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 Enterprises.
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, an
effort currently co-ordinated by Transnet internal audit. To this end,
the collective assurance effort continues to receive the necessary
attention by all three lines of assurance. Processes for the integration
of assurance effort, including the maturity of the second line Centre
of Excellence and optimising third line assurance effort across the
business is ongoing.
Under the leadership of the Chief Audit Executive, Ms S Khan, Transnet
internal audit continues with the implementation of its operating
model which is aligned to the Board strategy which seeks to strengthen
governance, risk management and internal controls across the business
by unlocking the strategic value of internal audit.
In this regard, Transnet has appointed a new set of professional
services firms (Deloitte and Ernst & Young) for the provision of internal
audit and advisory services following a competitive, open market
procurement process.
This arrangement enables Transnet internal audit management to
retain control over the internal audit function and deliver audit effort
inhouse whilst leveraging the capacity, skills, extensive knowledge base
and technological tools of the service provider firms to enhance audit
activities and outcomes to business.
As part of this strategy, the Transnet internal audit function is building
audit capacity for Transnet and the economy via its recently launched
flagship audit trainee programme. This initiative seeks to train 100
young audit professionals over the next few years.
It should be noted that the internal audit function has been assessed
as ‘general conforms,’ as part of the external quality assurance review
completed in the current financial year. This result represents the
highest level of compliance per the audit standards.
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 is satisfied with
the progress made in the current financial year in pursuing an effective
co-sourced internal audit operating model. Efforts to strengthen the
internal audit function will have to be intensified, along with improved
alignment with external audit in pursuit of reliance 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 Transnet control environment has been assessed as being
sub-optimal to enable the achievement of business imperatives,
including effective and efficient operations, accurate and complete
reporting to internal and external stakeholders as well as compliance to
relevant laws and regulations.
The impact of the prior years’ challenges continues to be felt in the
current financial year, with the control environment being severely
constrained due to the absence of funding; adequate resource capacity
and an increase in security vulnerabilities.
Notwithstanding efforts made throughout the business to improve the
control environment, the effectiveness thereof remains challenged
given the extensive time needed to embed and realise benefit from new
controls and processes.
The foundation of an effective system of internal control is directly
impacted by people, technology, and processes. Although Transnet
has in place appropriately designed processes, the ability to attract
and retain needed skills remained a challenge in the current financial
year. The continued reliance on manual processes and legacy systems
to support business activity has impeded improvements in the control
environment.
Despite several management interventions, the overall status has not
improved year on year and similar to the prior year, operations is the
area where significant focus and enhancement is needed.
Management’s effort to remediate previously identified weaknesses
is commended, as remediation of issues 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.
Annual financial statements
20
21
Audit Committee report
Audit Committee report
for the year ended 31 March 2023
Information technology (IT) general controls
The committee monitors the effectiveness of the IT control
environment and mitigating controls implemented. The committee
noted the efforts made to improve the IT environment including
improvements in IT security, the overall business continuity and
disaster recovery processes as well as the dependence on third-party
outsourcing partners.
Management have made good progress regarding the required IT
security upgrades and automation processes, but will continue to
monitor and identify opportunities to enhance the IT environment
to further support finance and operational environments in the
implementation of the Group’s strategy.
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.
Composition and meeting attendance
In performing their going-concern assessment, members of the
committee considered the robustness of budgets and the 2022/23
business results, cash flow projections, progress made on cash-
preservation initiatives to mitigate against the impact of revenue
shortfalls as well as the flexibility of the capital investment plan and
the well-defined funding plan.
Appointment of debt officer
Mr Andre Pillay (Group Treasurer) was appointed as debt officer during
the current 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.
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;
•
Overseeing the successful $1 billion drawdown from the GMTN
programme;
•
Gearing level and structure of the statement of financial position;
•
Performance of Operating divisions and the impact on free cash
flows;
•
Monitoring of financial and operational risks, including the
recovery from the impact of the floods in KZN;
•
The integrated assurance plan and control environment 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 2023/24
•
Revenue generation and focus on cost-savings;
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
2023 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 another unqualified audit opinion and
improvements noted evidencing management’s efforts in this regard.
There are, however, still 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 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
process and their contribution in working with management to the
achievement of the reporting timelines that have been realised.
Schedule of attendance at meetings from 1 April 2022 to 31 March 2023
Q1
Q2
Q2
Q3
Q3
Q4
Q4
28/05
25/07 SP
22/08
03/10 SP
21/11
20/02 SP
15/03
2022
2022
2022
2022
2022
2023
2023
Mr LL Von Zeuner1✓✓✓✓✓A–
Ms ME Letlape✓✓✓✓✓✓✓
Mr AP Ramabulana
(Interim chairperson)2 A✓ A✓✓✓✓
Ms UN Fikelepi3––––– –✓
Ms G Ramphaka1✓✓✓✓✓––
SP Special meeting.
✓
Present.
A Apology.
1 resigned during the financial year.
2 appointed as the interim Audit Committee chairperson effective 1 March 2023.
3 appointed as an Audit Committee member, effective 1 March 2023.
•
Funding approach and execution of debt redemption;
•
Improved liquidity, working capital management and over time
lower gearing levels remain a priority;
•
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.
R Buthelezi
Interim chairperson of the Transnet Audit Committee
29 August 2023
Johannesburg
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.
The Audit Committee chairperson, Louis Von Zeuner resigned
during the current financial year from the Transnet Board. The Audit
Committee, Board and management would like to thank Louis for his
persistent effort, competent guidance and unwavering commitment
to the Transnet Board during his tenure and wish him well in his future
endeavours. Mr AP Ramabulana was appointed as interim Audit
Committee chairperson effective 1 March 2023, with Ms UN Fikelepi
also joining the Audit Committee. A new Board was then appointed
in July 2023, resulting in the retiring of the previous remaining Board
members with the exception of two members.
The new Board includes the chairperson Mr A Sangqu, Ms R Buthelezi,
Mr M Debel, Mr B Jiya, Ms L Letsoalo, Dr PS Molefe, Prof FS Mufamadi,
Mr D Patel, Ms B Sedupane and Ms MP Zambane. The composition of
the new audit committee was approved by the Shareholder Minister
in August 2023 and includes, Ms R Buthelezi (interim chairperson),
Mr M Debel, Mr B Jiya, Mr D Patel and Ms B Sedupane. The Board has
faith in these members fulfilling their responsibilities and ensuring the
Committee continues to contribute positively to the achievement of
the strategic objectives of Transnet.
Annual financial statements
22
23
Report of the directors
for the year ended 31 March 2023
Introduction
The directors submit their report, together with the Company and
Group annual financial statements, for the year ended 31 March
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, summary curricula vitae
of the directors, key activities and decisions of the Board and its
committees for the year ended 31 March 2023 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 for the reporting
period are set out in note 38 of the annual financial statements.
Ms GT Ramphaka resigned in December 2022 and Mr LL Von Zeuner
resigned in February 2023. In July 2023, the remaining Board members
were retired by rotation, with the exception of two members.
The new Board was duly appointed by the Shareholder Minister
in July 2023 and consists of the chairperson Mr A Sangqu,
Ms R Buthelezi, Mr M Debel, Mr B Jiya, Ms L Letsoalo,
Dr PS Molefe, Prof FS Mufamadi, Mr D Patel, Ms B Sedupane
and Ms MP Zambane. The new Board has accepted this immense
responsibility and after careful consideration of the current
reporting year key activities and decisions of the previous Board,
approved the annual financial statements in compliance with
applicable legislation (refer to page 4). The new Board is committed
to working together with management in steering the organisation
on its path to reinvention and growth in line with governmental
objectives.
Performance for the reporting period
The overall performance of Transnet for the year ended 31 March
2023 was a reflection of the substantial impact that was brought
about by the myriad of challenges the entity faced in the financial
year. In addition to subdued economic conditions, Transnet had to
endure continuous power supply disruptions, the floods in KwaZulu-
Natal (KZN), industrial strike action and operational challenges
especially affecting its rail business.
The global economic landscape remained volatile throughout the
financial year, owing largely to escalating global inflation and the
adverse effects of the relentless geopolitical factors such as the
war in Ukraine and the lingering effects of COVID-19. The IMF
forecast the global economic growth prospects in October 2022 to
decrease from 6,0% in 2021, to 3,2% in 2022 and 2,7% in 2023,
the weakest growth projections since 2001. The annual growth in
real gross domestic product (GDP) for South Africa also decreased
to 2,0% in the 2022 calendar year from a strong rebound of 4,9%
in 2021. The South African Reserve Bank (SARB) anticipates the
economy to grow by 0,2% in 2023, in line with the International
Monetary Fund (IMF) forecast of 0,1% growth in 2023.
The financial year started with massive floods in April 2022, that
caused significant damage to rail and port infrastructure in the
KZN area, forcing Transnet to suspend some of its operations. Rail
operations were suspended due to areas affected by washaways
and mudslides, whilst the marine operations on the water and
land sides were impacted by debris that was caused by the floods.
While recovering from the effects of the floods, the company was
then hit by industrial action affecting operations for 11 days in
October 2022. All these events taking place whilst the company
was experiencing shortages in the supply of locomotives and
continuous derailments caused by the poor condition of the
network, as well as persistent power supply disruptions.
Annual performance was therefore impacted by these conditions
resulting in rail volumes declining by 13,6% as the freight business
moved 149,5 million tons (mt) from the 173,1mt in financial
year 2022 and port container volumes decreasing by 2,3%
to 4 034 000 TEUs (2022: 4 131 000 TEUs). In spite of these
challenges, automotive and break-bulk volumes improved
significantly (+21,0%) and petroleum volumes increased by 1,0%
when compared to prior year, in line with the overall positive
performance from the port and pipeline businesses which
contributed to the overall increase in Group revenue.
Detailed commentary on the performance for the year is included
in the integrated report on pages 131 to 135.
Accounting policies
The accounting policies applied in the preparation of the annual
financial statements for the year ended 31 March 2023 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 of the annual financial
statements.
Share capital
There has been no change in the authorised share capital of the
Company during the year. 5 837 000 000 ordinary shares of R1
each were issued to the shareholder (i.e. the Department of Public
Enterprises) in March 2023 resulting in the issued share capital
of the Company totalling 18 497 986 310 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:
(a)
Shareholder expectations;
(b)
Long-term sustainability;
(c)
Future funding requirements and reinvestment opportunities;
(d)
Solvency and liquidity;
(e)
Going concern assessment;
(f)
Changes in government and regulatory policies;
(g)
Company’s cash generation ability; and
(h)
Economic environment.
Further, dividend payment is informed by the availability of excess
cash from operating activities after allowing for:
(a)
Debt servicing (interest and principal);
(b)
Funding a sustaining capital investment; and
(c)
Financial flexibility.
The Board of Directors have decided not to declare a dividend for
the financial year ended 31 March 2023. The Company assessed
the following factors in arriving at this decision:
•
Based on the 2024 Corporate Plan, Transnet will have no excess
cash in the 2023/24 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 network assets in accordance with its
accounting policy, which requires an independent valuation using
the depreciated optimised replacement cost method every three
years (with indexation in the intervening years where appropriate),
and the discounted cash flow method applied annually.
At 31 March 2023, the rail infrastructure assets were revalued
based on the depreciated optimised replacement cost and
discounted cash flow methods. An external index valuation of
the pipeline network was performed by Ernst and Young, 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 external index
valuation.
Rail infrastructure
The carrying value of rail infrastructure was revalued by
R772 million (2022: R6,6 billion revaluation) in line with the
discounted cash flow method adopted.
Port facilities
The carrying value of port infrastructure was revalued by
R2,8 billion (2022: R3,9 billion revaluation) in line with
revenue projections and port operating assets were revalued by
R1,44 billion as per the external valuation (2022: R169,3 million
revaluation).
Pipeline networks
The carrying value of pipeline networks was revalued through
an external valuation and resulted in a R453 million revaluation
(2022: R905 million revaluation).
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 2023 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. A full valuation was
performed for one-third of the investment property portfolio and a
desktop valuation was undertaken for the remainder of the property.
The valuation resulted in a fair value increase in investment
property of R1,1 billion (2022: R9,8 billion increase) due mainly to
the improvement in the property market over the financial year.
Capital expenditure and commitments
The Company continued to execute its infrastructure investment
programme, spending R13,9 billion for the year (2022: R13,2 billion).
The capital investment for the year comprised R1,0 billion
(2022: R1,9 billion) invested in the expansion of infrastructure
and equipment and R12,9 billion (2022: R11,3 billion) invested to
maintain capacity in the rail, pipelines and ports divisions.
Further details regarding capital commitments are included in
note 30 of the annual financial statements.
Passenger Rail Agency of South Africa (Prasa)
Prasa owed Transnet R220 million at 31 March 2023 (2022:
R1,8 billion), of which R1,6 million (2022: R315 million) related to
services provided during the year.
In accordance with IFRS 15 Revenue from Contracts with
Customers, the Group’s Freight Rail division previously did not
recognise revenue from Prasa at the time services were provided as
the collectability requirement was not met due to a history of late
and/or non-payment by Prasa.
Following payment received from Prasa in the current year, the
Group recognised revenue of R693 million (2022: R505 million)
in accordance with IFRS 15, including R423 million (2022:
R249 million) which had not been recognised in prior periods.
Considering the above and the set-off agreement concluded in the
prior year, the Group has reassessed the recognition of revenue
from Prasa and is satisfied that all requirements in IFRS 15 are now
met. Therefore, the Group will recognise revenue from Prasa going
forward in accordance with IFRS 15.
Transnet remains committed to working with Prasa in providing
passenger rail services in South Africa.
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 2024, cost-saving opportunities, the
cost of capital projects and related optimisation opportunities and
the funding plan.
Further details are provided in note 39 of the annual financial
statements.
Funding
As at 31 March 2023, the Company’s total borrowings amounted to
R130,1 billion (2022: R128,8 billion).
In the period under review, the Group raised funding of R49,1 billion
(2022: R13,1 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.
Annual financial statements
Report of the directors
24
25
Report of the directors
for the year ended 31 March 2023
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.
Transnet achieved a cash interest cover ratio (CIC) of 2,1 times for the current reporting year, which resulted in a breach of the CIC loan
covenant (below 2,5 times) on 11 loans with a total capital balance of R35 billion. On 21 April 2023, Transnet submitted waiver requests to each
of the lenders requesting that they waive the triggered event of default. All the required waivers from affected lenders relating to the CIC loan
covenant breach have been received with all matters appropriately closed.
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:
Foreign currency rating
Ba3/Stable outlook
BB-/Negative outlook
Local currency rating
Ba3/Stable outlook
BB-/Negative outlook
National scale rating (NSR) – long and short term
A2.za/P-1.za
za.AA-/za.A-1+
BCA/SACP
b2/Stable outlook
b+/Negative outlook
* Further details are provided in note 36 of the annual financial statements.
Transnet has also put measures in place to ensure that
consequence management and remediation actions are
continuously being undertaken. Updates on the consequence
management taken by Transnet have consistently been included
in the quarterly reports that are sent to the National Treasury and
the Department of Public Enterprises.
The continuous tracking and enhancement of the PFMA
remediation plan remains a key priority for the Company. The
lessons learned and challenges experienced have been clearly
defined in order to place the organisation in a much better position
to timeously implement any outstanding initiatives that drive PFMA
compliance across the organisation and in the next financial year
that remains of the PFMA exemption period.
Material irregularity
In the 2022/23 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
prescribed by the tariff methodology. TNPA requested a revenue
requirement for the 2023/24FY translating into a weighted average
tariff increase of 9,24%. On 1 December 2022, the Ports Regulator
issued the tariff record of decision for the 2023/24FY (inclusive of
excessive tariff increase margin credit (ETIMC)) translating into an
average tariff adjustment of 3,32%. After due consideration and
engagements with the PRSA, the decision of the PRSA has been
implemented. The tariff book applicable for the 2023/24FY, has
been duly stamped by the PRSA and published on the TNPA
website.
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 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.
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 054 million (2022: R1 381 million) and R3 871 million
(2022: R4 013 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 R352
million (2022: R368 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 after the reporting period date
Debt service reserve account
In April 2023, Transnet invested R1,1 billion in a debt service
reserve account, which is a restricted foreign cash account due
to an arrangement with a lender. The restrictions on this account
are outlined in the agreement between the two parties.
Appointment of the new Transnet Board
In July 2023, four members of the previous Board were retired by
rotation, with two members remaining. The new Board was thereafter
appointed as detailed in the Board of Directors section on page 24.
Settlement with Bombardier Transportation
South Africa (Pty) Ltd
On 24 August 2023 Transnet entered into an agreement with
Bombardier Transportation South Africa (Pty) Ltd (BT) to settle the
dispute pertaining to the review application instituted by Transnet in
respect of the 2014 locomotive supply agreement and to provide for
the further delivery of the remaining locomotives under the contract.
In terms of the agreement, BT will reimburse Transnet as follows:
•
Differential in baseline price of delivered locomotives –
R181,6 million;
•
Finance costs associated with the additional portion of advance
payments– R68,4 million; and
•
Variation orders associated with manufacturing and assembly facilities
relocation – R218,1 million.
Transnet in turn will release withheld penalties of R92,4 million in favour
of BT.
Transnet is positioned to take delivery of the undelivered locomotives
over the next 3,5 years.
The financial outcome of the agreement is planned to be assessed by
an independent reviewer whilst the review application shall proceed
notwithstanding the settlement agreement, albeit in a non-adversarial
form. Transnet and BT shall file a joint affidavit motivating for the
settlement agreement to be accepted by the High Court as just and
equitable relief in the circumstances.
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.
Transnet received an exemption from disclosing the particulars required
by section 55(2)(b)(i) (ii) and (iii) of the PFMA in the annual financial
statements for a period of three years, starting from the 2021/22 to
2023/24 financial years. The extent of the exemption has resulted in the
disclosure of the confirmed and under assessment irregular, fruitless
and wasteful expenditure (IFWE) in the integrated report of the current
and one comparative year.
The exemption was granted to allow Transnet to develop and
implement internal control measures to ensure accurate and complete
reporting of IFWE. The exemption also necessitated the continuous
enhancement of the internal controls to ensure accurate and complete
reporting of IFWE. The 2023 financial year remediation plan was, as a
result, enhanced to include the audit readiness plan to sustainably
address the root causes relating to the occurrence, accuracy, and
completeness of irregular expenditure, improve the PFMA control
environment and to reduce incidences of future transgressions.
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 issued their determination on
29 August 2023 to the accounting authority on their assessment of
the forensic report and the actions taken, including consequence
management and are awaiting a response.
Economic regulation and regulatory reform
The tariffs of two operating divisions, namely Transnet Pipelines
(TPL) and Transnet National Ports Authority (TNPA) 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.
With approximately 24,4% of Transnet’s revenue and 53,9% 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 24 February 2022 the Energy Regulator set the petroleum
pipelines system tariffs that will allow Transnet to realise a 9,1%
increase in allowable revenue compared to the 2021/22 financial year
(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 2022/23FY (from
52,21 c/l to 56,39 c/l).
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 R1,35 billion
imprudent to the Transnet R3,02 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 1 August 2022 the Transnet National Ports Authority tariff
application for the 2023/24FY (the tariff application) was
submitted to the Ports Regulator of South Africa (PRSA) as
Freight Rail
On 27 March 2023, Transnet presented its views on the Economic
Regulation of Transport (ERT Bill) to the Select Committee on
Transport, Public Service and Administration, Public Works,
and Infrastructure (Select Committee). Transnet had previously
submitted comments to the Parliament Portfolio Committee on
Transport. Transnet has requested to make an oral presentation to the
Select Committee. To this extent, the Select Committee is still to inform
Transnet about the arrangements for such a session. 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.
Transnet single entity safety permit for the
period 2022 to 2025
The Railway Safety Regulator (RSR) issued Transnet with a
safety permit valid from 29 August 2022 to 31 August 2025. The
safety permit is valid for the following operating divisions:
•
Transnet Freight Rail;
•
Transnet Engineering;
•
Transnet Pipelines;
•
Transnet National Ports Authority; and
•
Transnet Port Terminals.
Railway safety permit fees 2022 financial year
determination
In terms of the notice issued on 17 February 2023, the Minister of
Transport made a final determination of R120,01 million payable by
Transnet for the permit fees in relation to the 2023/24FY. The
determination represents a 4,7% increase for the fee charged in the
2022/23FY. The Department of Transport (DoT) together with the
RSR developed a new safety fee permit model to calculate the annual
safety permit fees to be charged to rail operators. The new safety
permit fee model was issued on 17 March 2023 for comment.
Transnet will submit its comments to the DoT accordingly.
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.
Annual financial statements
Report of the directors
27
26
Report of the directors
for the year ended 31 March 2023
1 064 review application
On 9 March 2021, Transnet and the SIU jointly launched an
application in the High Court to review and set aside the locomotive
supply agreements concluded with four original equipment
manufacturers (OEMs): China South Rail (now CRRC E-Loco),
China North Rail (now CRRC SA-Rolling Stock), Bombardier
Transport (now Alstom) and General Electric (now Wabtec).
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.
Limited progress was made in the litigation of the review as the
focus was in concluding settlements that could be presented to the
court for consideration as the just and equitable remedy. Once the
court processes conclude, Transnet will consider the impact of the
outcomes on the fair representation of property, plant and
equipment.
The locomotive supply agreements with CRRC E-loco and CRRC
SA are currently suspended pending the outcome of the court
application. The supply agreement with BT was not suspended and
deliveries are continuing, with the delivery schedule expected to be
completed in the next three years.
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 (TFR), Transnet Port Terminals (TPT) and
Transnet National Ports Authority (TNPA). In November 2021 the
Competition Commission informed Transnet of an additional
investigation that is being 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.
In August 2022 the Competition Commission presented a
settlement proposal to Transnet with respect to the excessive
pricing complaint and preliminary findings against TPT.
Engagements are underway between Transnet and the
Commission with a view to agree on an omnibus settlement of the
TPT excessive pricing complaint and the TFR 2016 Competition
Commission investigations.
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.
There was a single recommendation for Transnet and this is being
actioned. 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 (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 is working closely with the SIU in recovering
losses suffered as a result of wrongdoing.
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
R1,8 billion. Litigation has been ongoing since 2013 by Total and
2018 by Sasol.
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 has now reverted to the High Court for determination
of the remaining separated issues and the trial in the matter has
been set down from 2 October to 13 October 2023.
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.
On 14 April 2023 NERSA issued its final ruling in relation to the
complaint and determined amongst others that in terms of the
Constitutional Court’s judgement, it compels Sasol Oil and Total
SA to pay Transnet the NERSA approved tariff from 13
September 2020.
Shareholder’s Compact – performance criteria
The Minister of Public Enterprise approved the 2022/23FY
amended Shareholder’s Compact on 30 November 2022.
The key performance indicators (KPIs) contained in the
Shareholder’s Compact as agreed on by the Board and the
Shareholder Representative is the performance management
framework for the Company. The 2022/23FY performance against
the Shareholder’s Compact targets are outlined in the tables that
follow. The performance information contained therein has been
subjected to an independent audit review, and the auditors have
reported their findings in the independent auditor’s report.
The 2022/23FY performance against the commitments made in
the Shareholder’s Compact is largely a reflection of the overall
challenges affecting the business. The KPIs herein are selected by
the Shareholder Representative in consultation with the Board of
Directors to drive a strategic focus for Transnet. The conclusion of
the compacting process in this regard was driven by placing
greater focus on the more strategic areas that enable acceleration
of the recovery efforts as well as private sector partnership
programmes. The number of indicators were thus reduced from
the 44 performance indicators committed in the previous financial
year to 19. The key performance areas were also reduced from 5
to 4, albeit they remained in line with the Statement of Strategic
Intent.
The company was only able to achieve 26,3% (5 out of 19
KPIs) of all the performance indicators committed in the
2022/23 FY Shareholder’s Compact for the period ending
March 2023.
Performance in key performance area 1 was largely impacted by
the disruptions to the operational environment already alluded to
above. Notably, the export manganese performance was trending
positively until the industrial action happened in October 2022,
whilst the export coal line was impacted by the rise in cable theft
and unavailability of critical locomotives. Key performance area 2
was impacted by the industrial action that added to the complexity
of the transactions outlined therein. Key performance areas 3 and
4 are as a direct result of operational performance, in spite of the
Board and managements’ implementation of several initiatives to
maintain financial ratios.
Key performance area 1: Improve operational efficiencies and reduced safety and security risks
Ramp up volumes in critical/profitable flows
Export coal (RBCT)
mt
≥61,4
48,7
Manganese
mt
≥15,9
14,1
Improve operational efficiencies
Wagon cycle time
Export coal (RBCT)
Hours
≤64
88
Ship turnaround time
DCT Pier 1
Hours
≤55
75
DCT Pier 2
Hours
≤53
93
Container moves per ship working hour – DCT Pier 1
Moves per hour
≥48
39
Prevent and reduce safety and security incidents
Reduction in security incidents
Transnet Freight Rail
%
≥10
25
Transnet Pipelines
%
≥15
(25,3)
Loss time injury frequency rate (LTIFR)
Ratio
0,75
0,66
Priority transaction concluded
Selection of PSP
Date
31 October 2022
Not achieved.
partner for the
The partner selection process was delayed due to the unforeseen industrial
Ngqura Container
action in October 2022 that led to the extension of the closing date for the
Terminal
RFP. This process will however be concluded early in the 2023/24FY.
Selection of PSP
Date
31 October 2022
Not achieved.
partner for the
The partner selection process was delayed due to the unforeseen industrial
Durban Container
action in October 2022 that led to the extension of the closing date for the
Terminal Pier 2
RFP. This process will however be concluded early in the 2023/24FY.
RFP for a partnership
Date
31 October 2022
Not achieved.
in City Deep Terminal
Upon finalisation of the business case, this transaction was integrated as
issued to the market
part of the broader container corridor operating lease, which is currently at
a request for qualification (RFQ) stage.
RFP for a partnership
Date
31 October 2022
Not achieved.
in Kaalfontein
Upon finalisation of the business case, this transaction was integrated as
Terminal issued to the
part of the broader container corridor operating lease, which is currently at
market
a request for qualification (RFQ) stage.
Disposal of non-core assets
Disposal of
Date
31 March 2023
Not achieved.
approximately 6 500
The initial transaction was carried within the specified timelines and confined
iron ore wagons
to iron ore customers, however, there was no response received. Transnet
reassessed the transaction and opened it to the broader market as a wagon
sale and leaseback of wagons, which should be concluded early in the new
financial year.
Operating ratio
%
58,5
66,7
Cash interest cover (CIC)
Times
≥2,5
2,1
Gearing
%
≤50
43.6
Number of trainees
Number
≥450
452
Enterprise and supplier development
% of NPAT
≥3
7,98
Remuneration report
Details of director’s remuneration are included in note 38 of the annual financial statements. A detailed remuneration report is included in the
integrated report, on pages 117 to 119.
Annual financial statements
Report of the directors
28
29
Accounting policies
for the year ended 31 March 2023
The consolidated financial statements for the year ended
31 March 2023 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 30 August 2023.
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
rounded to the nearest million .
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.
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 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
Annual financial statements
Accounting policies
30
31
Accounting policies
for the year ended 31 March 2023
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.
Certain 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 “assurance-type” warranties are
not 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 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.
Other 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
th 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.
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, foreign exchange
gains and losses, to the extent that they are regarded as an
adjustment to the interest expense, and hedge accounting
adjustments where applicable.
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 when; (a) it incurs expenditures
on the asset, (b) it incurs borrowing costs, and (c) the activities
necessary to prepare the asset for its intended use or sale are in
progress. Capitalisation is suspended when active development
of the qualifying assets is suspended for an extended period.
Capitalisation ceases when substantially all the activities necessary
to prepare the qualifying asset for its intended use or sale are
complete. The Group defines 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.
Should a specific borrowing remain 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.
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.
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
Annual financial statements
Accounting policies
32
33
Accounting policies
for the year ended 31 March 2023
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 tax 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 are 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 cash
flow and fair value hedges.
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 that are necessary
to prepare the asset for its intended use, including technical and
administrative work, are in progress 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 depreciation methods or 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 using the revaluation model
The asset classes in the table below 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 and are performed with
sufficient regularity to ensure that the carrying amount does not
differ materially from that which would be determined at the end
of the reporting period.
The Group applies the following valuation methods in revaluing
its assets:
•
Rail infrastructure• Depreciated optimised
replacement cost *
•
Port infrastructure• Discounted cash flows
•
Port operating assets
•
Pipeline networks
* - 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 above 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 in profit or loss to the extent that it exceeds the
balance, if any, 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.
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,
unless it is capitalised as part of the cost of another asset
such as inventories or assets under construction in accordance
with the applicable accounting standard. 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:
Land improvements5 – 30
Buildings and structures10 – 50
Buildings and structures components5 – 25
Permanent way and works3 – 95
Rail infrastructure3 – 95
Aircraft including components8 – 15
Pipelines, including network components6 – 75
Port infrastructure12 – 100
Floating craft including components5 – 40
Port operating assets, including components3 – 40
Rolling stock30 – 60
Rolling stock components25 – 60
Containers10 – 20
Vehicles3 – 15
Machinery, equipment and furniture3 – 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. Gains or losses
arising from the disposal, write-off or retirement of an item of
property, plant and equipment are calculated as the difference
between the sales proceeds (if any) and the carrying amount of
the asset and are 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, after deducting the straight-line
rental income accrual (deferral), are recognised in profit or loss in
the period in which they arise.
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
Annual financial statements
Accounting policies
34
35
Accounting policies
for the year ended 31 March 2023
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 held for capital
appreciation and classified as investment property.
Valuation
For valuation purposes the Group applies the income method 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. Where neither the
capitalisation rates nor comparable selling prices are available for a
property, the depreciated replacement cost method is applied.
Full valuations by an external, independent valuer, having
appropriate recognised professional qualifications and recent
experience in the location and category of the property being
valued are obtained on a rotational basis, ensuring that at least
one third (1/3) of the investment property portfolio is valued
by an external independent valuer each year, and all properties
in the portfolio are valued by an external independent valuer
at least once in a three-year cycle. The directors value the remaining
properties annually based on desktop valuations performed on a
similar basis by Transnet’s qualified internal valuers.
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 to 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 incurred 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 in profit or loss 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:
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 each operating division as a separate cash-generating
unit.
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:
•
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 a “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.
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:
•
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, contracts 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.
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 investments designated as such on initial
application of IFRS 9.
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
Annual financial statements
Accounting policies
36
37
Accounting policies
for the year ended 31 March 2023
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;
•
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.
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.
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).
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 credit 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 debtor is unlikely to pay its credit
obligations to the Group in full, without recourse by the Group to
Annual financial statements
Accounting policies
38
39
Financial assets at FVTPL
Subsequently measured at fair value. Net gains and losses, including any interest or dividend income,
Financial assets at amortised cost
Subsequently measured at amortised cost using the effective interest rate method. The amortised
Debt investment at FVTOCI
Subsequently measured at fair value. Interest income calculated using the effective interest rate
Equity investment at FVTOCI
Subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the
Accounting policies
for the year ended 31 March 2023
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 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 in determining the
expected credit losses are consistent with the cash flows used in
measuring the lease receivable in accordance with IFRS 16 Leases.
Expected credit losses are calculated on the outstanding credit
balances excluding value added tax. (refer note 36 for further
details on the 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.
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.
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
Annual financial statements
Accounting policies
40
41
Accounting policies
for the year ended 31 March 2023
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 measured at fair
value in accordance with IAS 40 Investment Property and IFRS 9
Financial Instruments 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 the relevant standard.
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 five defined benefit plans and a defined
contribution plan. The assets of the defined contribution plan and
the two funded defined benefit plans are held separately from the
Group and are administered by the fund’s trustees.
Defined contribution plan
The Transnet Retirement Fund is a defined contribution fund,
and all employees of the Group are eligible members of the fund.
The Group’s contributions to the defined contribution fund are
recognised as an expense in profit or loss in the period in which the
employees render the related service.
Defined benefit plans
The Group has five 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 Transport Pension
Fund: Transnet Sub-fund and the Transnet Second Defined Benefit
Fund are fully funded while the other defined benefit plans are
unfunded.
The defined benefit plans are actuarially valued for accounting
purposes by professional independent consulting actuaries on an
annual basis. The benefit costs and net defined benefit liability
(asset) under each plan are determined separately using the
projected unit credit method.
The current service cost and net 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 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 to 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 a liability and an expense for
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.
Right-of-use assets are generally depreciated over the shorter of
the asset’s useful life and the lease term on a straight-line basis. If
the lease transfers ownership of the underlying asset to the Group
at the end of the lease term or the Group is reasonably certain to
exercise a purchase option, the right-of-use asset is depreciated
over the underlying asset’s estimated useful life. The estimated
useful life of the right-of-use assets is determined on the same
basis as property, plant and equipment owned by the Group. The
right-of-use asset is adjusted for impairment losses, if any, and for
certain re-measurements of the lease liability, where applicable.
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.
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.
Re-measurement of lease liability
The lease liability is re-measured 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 re-measured 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 re-measured, 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 stand-alone price for the increase in scope
and any appropriate adjustments to that stand-alone 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 (excl. VAT).
The Group recognises the lease payments associated with such
leases as an expense in profit or loss 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.
De-recognition
Any gain or loss arising from the partial or full termination of
a lease (i.e. de-recognition 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 stand-alone 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
Annual financial statements
Accounting policies
42
43
Accounting policies
for the year ended 31 March 2023
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 interest 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
on which it is located when the Group has a present obligation,
legal or constructive, to decommission the asset and restore the
site 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 knowhow 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 is recognised in profit or loss; and
•
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, unless it satisfies the requirements for capitalisation as an
asset, and is reviewed at least annually. Subsequent changes to the
provision are recognised prospectively as a change in accounting
estimate.
More details on the Group’s provisions are provided in note 25 to
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 claims and customer claims,
including warranty 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.
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 party transactions
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.
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 national government. Entities
in other spheres of government, and government entities that are
independent in accordance with the constitution and laws of South
Africa 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, telecommunication, 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.
Annual financial statements
Accounting policies
44
45
Financial reporting standards and interpretations issued but not yet effective
The following new or revised IFRSs, amendments and interpretations, which are applicable to the Group were not yet effective for the year
ended 31 March 2023 and were not applied in preparing these financial statements. Transnet will not be early adopting any of the standards
below.
Standard or
Detail
Effective date
interpretation
IAS 1
Presentation of financial statements
(amendments)
Classification of liabilities as current and non-current
Annual periods
The amendment clarifies that:
beginning on or
• the classification of liabilities as current or non-current should be based on the rights that are in
after 1 January
2024.
existence at the end of the reporting period;
• classification is unaffected by expectations about whether an entity will exercise its right to defer
settlement of a liability; and
• settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or
services.
The amendment affects only the presentation of liabilities in the statement of financial position – not
the amount or timing of recognition of any asset, liability, income, expenses or the information that
entities disclose about those items.
The amendment will be applied retrospectively and will not have a material effect on the Group’s
financial statements.
Classification of liabilities with covenants
Annual periods
The amendment improves the information an entity provides when its right to defer settlement of a
beginning on or
liability for at least 12 months is subject to compliance with covenants.
after 1 January
The amendment clarifies that only covenants which an entity is required to comply with on or before the
2024.
reporting date affect the classification of a liability as current or non-current and provides guidance on
how an entity should disclose information in the notes to help users understand the risk that non-current
liabilities with covenants could become repayable within 12 months after the reporting date.
The amendment will be applied retrospectively and will not have a material effect on the Group’s
financial statements.
Disclosure of accounting policies
Annual periods
The amendment requires entities to disclose their material accounting policies rather than their
beginning on or
significant accounting policies and provides additional guidance on how an entity identifies material
after 1 January
accounting policy information with examples of when accounting policy information is likely to be
2023.
material.
The amendment will be applied prospectively and will not have a material effect on the Group’s financial
statements.
Annual financial statements
Accounting policies
Standard or
Detail
Effective date
interpretation
IAS 8
Accounting policies, changes in accounting estimates and errors
(amendment)
Definition of accounting estimates
Annual periods
The amendment clarifies how companies should distinguish changes in accounting policies from
beginning on or
changes in accounting estimates, by replacing the definition of a change in accounting estimates.
after 1 January
Under the new definition, accounting estimates are “monetary amounts in financial statements that
2023.
are subject to measurement uncertainty”. The requirements for recognising the effect of a change in
accounting estimates prospectively remain unchanged.
The amendment will be applied prospectively and will not have a material effect on the Group’s
financial statements.
IAS 12
Income taxes
(amendment)
Deferred tax related to assets and liabilities arising from a single transaction
Annual periods
The amendment clarifies how entities should account for deferred tax on transactions such as leases
beginning on or
and decommissioning obligations. The amendments narrowed the scope of the recognition exemption
after 1 January
in paragraphs 15(b) and 24 of IAS 12 (recognition exemption) so that it does not apply to transactions
2023.
that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences.
The amendment will be applied retrospectively and will not have a material effect on the Group’s
financial statements.
International tax reform – Pillar Two model rules
Immediately upon
The amendments give companies temporary relief from accounting for deferred taxes arising from the
issuance of the
Organisation for Economic Co-operation and Development’s (OECD) international tax reform.
amendments.
The OECD published the Pillar Two model rules in December 2021 to ensure that large multinational
companies would be subject to a minimum 15% tax rate. More than 135 countries and jurisdictions
representing more than 90% of global GDP have agreed to the Pillar Two model rules.
The amendments will introduce:
• a temporary exception– to the accounting for deferred taxes arising from jurisdictions implementing
the global tax rules. This will help to ensure consistency in the financial statements while easing into
the implementation of the rules; and
• targeted disclosure requirements – to help investors better understand a company’s exposure to
income taxes arising from the reform, particularly before legislation implementing the rules is in
effect.
The temporary exception, and the requirement to disclose that the entity has applied the exception are
applicable immediately upon issuance of the amendments and retrospectively in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
The amendments will not have a material effect on the Group’s financial statements.
IAS 7
IFRS 7
(amendment)
Statement of cash flows and financial instruments: disclosures
Supplier finance arrangements
Supplier finance arrangements are often referred to as supply chain finance, trade payables finance or
reverse factoring arrangements.
The amendments supplement requirements already in IFRS accounting standards and require
a company to disclose:
\endash
the terms and conditions;
\endash
the amount of the liabilities that are part of the arrangements, breaking out the amounts for
which the suppliers have already received payment from the finance providers, and stating where the
liabilities sit on the statement of financial position;
\endash
ranges of payment due dates; and
\endash
liquidity risk information.
The amendments will be applied prospectively and are not expected to have a material effect on the
Group’s financial statements.
Annual periods
beginning on or
after 1 January
2024.
IAS 21
The effects of changes in foreign exchange rates
Annual periods
(amendment)
The amendments will require companies to apply a consistent approach in assessing whether a currency
beginning on or
can be exchanged into another currency and, when it cannot, in determining the exchange rate to use and
after 1 January
the disclosures to provide.
2025.
The amendments will not have a material effect on the Group’s financial statements.
IAS 28 and
Consolidated financial statements and investments in associates and joint ventures
The effective
IFRS 10
Sale or contribution of assets between an investor and its associate or joint venture
date of the
(amendment)
The amendment addresses the conflict between the requirements in IFRS 10 and IAS 28 when
amendments has
been deferred
accounting for the sale or contribution of assets between an investor and its associate or joint venture.
indefinitely until
The amendment will be applied prospectively and will not have a material effect on the Group’s
further notice.
financial statements.
4647
Annual financial statements
Accounting policies
Standard or
Detail
Effective date
interpretation
IFRS 16
Leases
(amendment)
Lease liability in a sale and leaseback transaction
Annual periods
The amendment requires a seller-lessee in a sale and leaseback transaction to determine lease
beginning on or
payments or revised lease payments in a way that the seller-lessee would not recognise any profit
after 1 January
or loss relating to the right-of-use asset retained by the seller-lessee.
2024.
The new requirement does not prevent the seller-lessee from recognising any profit or loss relating
to the partial or full termination of a lease.
The amendment will be applied retrospectively to sale and leaseback transactions entered after
the date of initial application of IFRS 16 and will not have a material effect on the Group’s financial
statements.
Annual improvements to IFRS Standards 2018-2020 cycle
No effective date.
Illustrative examples to IFRS 16 lease incentives
The amendment removed the illustration of the reimbursement of leasehold improvements where the
conclusion as to whether the reimbursement would meet the definition of a lease incentive in IFRS 16
was not clear enough.
The amendment only relates to an illustrative example (non-obligatory part of the IFRS) and will not
have a material effect on the Group’s financial statements.
Annual financial statements
Accounting policies
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:
Standard or
Detail
Effective date
interpretation
IFRS 4
Insurance contracts
(amendment)
IFRS 9 temporary exemption
Annual periods
The amendment to IFRS 4 enables an insurer applying the temporary exemption from IFRS 9 to apply
beginning on or
a practical expedient to account for a change in the contractual cash flows that are required by IBOR
after 1 January
reform by updating the effective interest rate to reflect any change arising from the reform.
2023.
IFRS 17
Insurance contracts
(new)
IFRS 17 creates a single accounting model for all insurance contracts under IFRS. The standard
Annual periods
requires an entity to:
beginning on or
• measure insurance contracts using updated estimates and assumptions that reflect the timing of
after 1 January
cash flows and take into account any uncertainty relating to insurance contracts;
2023.
• reflect the time value of money in estimated payments required to settle incurred claims;
• 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.
4849
Income statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
Notes
R million
R million
Revenue
1
(45 919 )
Net operating expenses excluding depreciation, derecognition and
2
(45 919 )
(45 010 )
(45 010 )
amortisation
Profit from operations before depreciation, derecognition,
amortisation and items listed below
3
(14 847 )
(16 098 )
Depreciation, derecognition and amortisation
(16 098 )
(14 847 )
Profit from operations before the items listed below
4.1
(415 )
Reversal of impairment/(impairment) of financial assets
4.2.1
(415 )
(2 119 )
(4 492 )
Impairment and devaluation of non-financial assets
4.2.2
(4 492 )
(2 119 )
Dividends received
4.3
(190 )
(157 )
Post-retirement benefit obligation expense
4.4
(157 )
(190 )
Fair value adjustments
5
Income/(loss) from associates and joint ventures
13
(6 )
Profit from operations before net finance costs
6
(10 684 )
(12 187 )
Finance costs
(12 187 )
(10 684 )
Finance income
7
(7 305 )
(Loss)/profit before tax
8
(7 325 )
(435 )
Tax
(441 )
(5 656 )
(Loss)/profit for the year
(5 676 )
Annual financial statements
Consolidated financial statements
Statements of comprehensive income
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
Notes
R million
R million
(5 656 )
(Loss)/profit for the year
(5 676 )
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
– Actuarial gain on post–retirement benefit obligations
Tax relating to components that will not be reclassified
8.1
(1 135 )
(1 135 )
(2 799 )
(2 799 )
subsequently to profit or loss
(9 )
Net items that may be reclassified subsequently to profit or loss
(7 )
(2 )
Items that may be reclassified subsequently to profit or loss
(5 )
– Profit/(loss) on cash flow hedges
(5 )
– Gain on revaluation
Tax relating to components that may be reclassified subsequently
8.1
(148 )
(148 )
(7 )
to profit or loss
(10 )
Other comprehensive income for the year, net of tax
(1 874 )
Total comprehensive income for the year
(1 894 )
5051
Disclosure of components of other comprehensive income
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
Notes
R million
R million
Items that will not be reclassified subsequently to profit or loss
10 816
3 375
Net profit on revaluation reserve
3 375
10 816
13 632
4 508
Profit on revaluation
4 508
13 632
905
453
– Gain on revaluation of pipeline networks
22
453
905
4 092
4 240
– Gain on revaluation of port facilities
22
4 240
4 092
6 643
772
– Gain on revaluation of rail infrastructure
22
772
6 643
(8)
83
– Decommissioning and restoration liability adjustment
22
83
(8)
2 000
(1 040)
– (Loss)/gain on revaluation of land, buildings and structures
22
(1 040)
2 000
(2 816)
(1 133)
Tax effect of revalued items
8.1
(1 133)
(2 816)
100
11
Net actuarial gain on post-retirement benefit obligations
11
100
83
13
Actuarial gain on post-retirement benefit obligations
22
13
83
– Actuarial gain on the Transport Pension Fund:
7
7
8
Transnet Sub-fund
32.1.2
8
(3)
(3)
– Actuarial loss on the Transnet Top Management Pensions
32.1.4
(3)
(3)
16
– Actuarial gain on the Transnet Workmen’s Compensation Act
16
15
Pensioners
32.1.5
15
(16)
– Actuarial (loss)/gain on the Transnet SATS Pensioners
(16)
8
medical benefits
32.2.1
8
55
9
– Actuarial gain on the Transnet employees medical benefits
32.2.2
9
55
17
(2)
Tax effect of net actuarial gain
8.1
(2)
17
Items that may be reclassified subsequently to profit or loss
3
5
Net gain on revaluation reserve
5
5
3
7
7
8
—
—
– Gain on revaluation of debt investment
22
—
5
3
7
– Gain on revaluation of other investments
22
7
3
—
(2)
– Tax effect of revalued items
8.1
(2)
(3)
(12)
391
Net gain/(loss) on cash flow hedging reserve
391
(12)
(5)
537
– Profit/(loss) on cash flow hedges
22
537
(5)
(7)
(146)
– Tax effect of cash flow hedge (profit)/loss
8.1
(146)
(7)
10 907
3 782
Other comprehensive income for the year
3 782
10 909
Annual financial statements
Consolidated financial statements
Statements of financial position
at 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
Notes
R million
R million
Assets
Non-current assets
9
Property, plant and equipment
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
17
Inventory
Trade and other receivables
18
Contract assets
27
Current tax asset
14
Derivative financial assets
Other short-term investments
16.2
Cash and cash equivalents
19
20
Assets classified as held-for-sale
Total assets
Equity and liabilities
Capital and reserves
21
Issued capital
Reserves
22
Attributable to the equity holder
Non-current liabilities
23
Employee benefits
Long-term borrowings
24
Derivative financial liabilities
14
Long-term provisions
25
Deferred tax liability
26
Other non-current liabilities
16.3
Current liabilities
27
Contract liabilities
Trade payables and accruals
28
Short-term borrowings
29
Derivative financial liabilities
14
Short-term provisions
25
Total equity and liabilities
5253
Statements of changes in equity
for the year ended 31 March 2023
Revalu-
Actuarial
Cash flow
Issued
ation
gains and
hedging
Retained
capital
reserve
losses
reserve
Other*
earnings
Total
R million
R million
R million
R million
R million
R million
R million
Company
Opening balances as at 1 April 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 )
Ordinary share issuance
Loss for the year
(5 656 )
(5 656 )
Other comprehensive income for the year (net of tax)
Transfer to retained earnings
(338 )
Balances at 31 March 2023
(192 )
Group
Opening balances as at 1 April 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 )
Ordinary share issuance
Loss for the year
(5 676 )
(5 676 )
Other comprehensive income for the year (net of tax)
Transfer to retained earnings
(338 )
Balances at 31 March 2023
(192 )
*Other reserves relate to the share of pension fund surplus (retained for application against pensioners).
Annual financial statements
Consolidated financial statements
Statements of cash flows
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
Notes
R million
R million
Cash flows from operating activities
34.1
Cash generated from operations
Changes in working capital
34.2
Cash generated from operations after working capital changes
34.3
(9 980 )
(10 963 )
Finance costs
(10 963 )
(9 980 )
Finance income
7
Tax paid
34,4
(13 )
(120 )
(122 )
Settlement of post‒retirement benefit obligations
(122 )
(120 )
(1 537 )
Derivatives settled and raised
(1 537 )
(13 173 )
(15 226 )
Cash flows utilised in investing activities
(15 705 )
(13 115 )
(10 154 )
(13 057 )
Investment to maintain operations
(13 536 )
(10 096 )
(10 370 )
(12 214 )
Replacements to property, plant and equipment
(12 214 )
(10 370 )
(2 )
(89 )
Acquisition of investment property
(89 )
(2 )
(5 )
(51 )
Acquisition of intangible assets
(51 )
(5 )
(61 )
(45 )
Borrowing costs capitalised
(45 )
(61 )
Proceeds on the disposal of property, plant and equipment
Proceeds on the disposal of intangible assets
Dividend income
(720 )
Net (increase)/decrease in other investments
(1 165 )
(3 019 )
(2 169 )
Investment to expand operations
(2 169 )
(3 019 )
(1 872 )
(876 )
Expansions – property, plant and equipment
(876 )
(1 872 )
(1 147 )
(1 293 )
Borrowing costs capitalised
(1 293 )
(1 147 )
(1 651 )
Cash flows from/(utilised in) financing activities
(1 651 )
Borrowings raised*
(20 062 )
(52 997 )
Borrowings repaid**
(52 997 )
(20 062 )
Ordinary share issuance
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Total cash and cash equivalents at the end of the year
19
1
Borrowings raised excludes deferred interest of R160 million (2022: R479 million), refer note 34.3 and fees relating to the raising of borrowings of R91 million
(2022: R35 million).
474
Included in borrowings repaid are repayments in respect of leases of R608 million (2022: R599 million).
5455
Annual financial statements
Consolidated financial statements
Segment information
for the year ended 31 March 2023
National
Total for
Elimination
Port
Other
of inter
Freight Rail
Engineering
Ports
Pipelines
reportable
segment
Total
Authority
Terminals
segments
segments1
transactions
R million
R million
R million
R million
R million
R million
R million
R million
R million
Revenue from contracts with customers
33 867
210
9 080
16 826
5 742
65 725
25
—
65 750
Coal
9 954
—
—
—
—
9 954
—
—
9 954
Iron ore and manganese
14 852
—
—
—
—
14 852
—
—
14 852
Mineral mining and chrome
4 323
—
—
—
—
4 323
—
—
4 323
Steel and cement
2 338
—
—
—
—
2 338
—
—
2 338
Agricultural and bulk liquids
1 143
—
—
—
—
1 143
—
—
1 143
Marine services
—
—
2 637
—
—
2 637
—
—
2 637
Containers
711
—
3 319
7 957
—
11 987
—
—
11 987
Automotive
100
—
450
1 400
—
1 950
—
—
1 950
Break-bulk
—
—
151
1 725
—
1 876
—
—
1 876
Bulk
—
—
2 210
5 744
—
7 954
—
—
7 954
Pipelines – oil and gas
—
—
—
—
5 731
5 731
—
—
5 731
Engineering
—
210
—
—
—
210
—
—
210
Other2
446
—
313
—
11
770
25
—
795
Other revenue
417
—
1 953
—
53
2 423
704
—
3 127
Lease income
417
—
1 953
—
—
2 370
704
—
3 074
Government grant
—
—
—
—
53
53
—
—
53
Total external revenue
34 284
210
11 033
16 826
5 795
68 148
729
—
68 877
Internal revenue
526
7 835
2 359
—
5
10 725
4 964
(15 689)
—
Total revenue
34 810
8 045
13 392
16 826
5 800
78 873
5 693
(15 689)
68 877
Energy costs
(6 009)
(253)
(780)
(995)
(332)
(8 369)
(428)
—
(8 797)
Maintenance costs
(2 793)
(172)
(569)
(521)
(125)
(4 180)
(380)
1 313
(3 247)
Material costs
(606)
(3 227)
(97)
(697)
(2)
(4 629)
(10)
3 430
(1 209)
Personnel costs
(12 399)
(5 257)
(2 781)
(5 403)
(487)
(26 327)
(2 509)
4 181
(24 655)
Other costs3
(6 281)
(1 139)
(1 653)
(3 318)
9
(12 382)
(2 394)
6 765
(8 011)
Earnings before interest, tax, depreciation, derecognition and amortisation (EBITDA)
6 722
(2 003)
7 512
5 892
4 863
22 986
(28)
—
22 958
Depreciation and amortisation
(10 420)
(226)
(2 742)
(1 763)
(1 070)
(16 221)
(119)
242
(16 098)
Impairment of assets
(2 630)
156
(197)
(690)
(14)
(3 375)
(232)
—
(3 607)
Dividends received and income from associates
—
—
—
—
—
—
14
—
14
Fair value adjustments and post-retirement benefit obligation expense
20
3
661
1
—
685
724
—
1 409
Finance costs
(6 131)
(958)
(744)
205
(243)
(7 871)
(16 379)
12 063
(12 187)
Finance income
(6)
13
432
391
1
831
11 418
(12 063)
186
(Loss)/profit before taxation
(12 445)
(3 015)
4 922
4 036
3 537
(2 965)
(4 602)
242
(7 325)
Total assets4
173 380
16 437
101 761
29 939
42 090
363 607
17 324
(17 203)
363 728
Total liabilities
133 211
15 431
25 935
7 655
17 527
199 759
29 593
(13 019)
216 333
Capital expenditure5
11 288
11
1 551
1 037
32
13 919
(48)
—
13 871
Cash generated from operations after working capital changes
12 479
(3 942)
6 687
6 212
3 773
25 209
142
—
25 351
EBITDA margin (%)
19,3
(24,9)
56,1
35,0
83,8
29,1
n/a
n/a
33,3
Number of permanent employees
22 995
8 126
3 911
7 690
648
43 370
2 267
n/a
45 637
(309)
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.
(310)
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.
(311)
Other costs include the remaining net operating expense line items as disclosed in note 2.
(312)
Excludes assets held-for-sale.
(313)
5657
Annual financial statements
Consolidated financial statements
Segment information
for the year ended 31 March 2022
National
Total for
Elimination
of inter-
Ports
Port
reportable
Other
segment
Freight Rail
Engineering
Authority
Terminals
Pipelines
segments
segments1
transactions
Total
R million
R million
R million
R million
R million
R million
R million
R million
R million
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
(236)
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.
(237)
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.
(238)
Other costs include the remaining net operating expense line items as disclosed in note 2.
(239)
Excludes assets held-for-sale.
(240)
5859
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
65 420
65 750
Revenue from contracts with customers
65 750
65 420
Rail freight
36 581
33 867
33 867
36 581
459
210
Engineering
210
459
23 093
25 906
Ports
25 906
23 093
5 225
5 742
Pipelines – petroleum products and gas
5 742
5 225
62
25
Other
25
62
3 039
3 127
Other revenue
3 127
3 039
Lease income
2 986
3 074
3 074
2 986
53
53
Government grants*
53
53
68 459
68 877
Total revenue
68 877
68 459
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).
263
Performance obligations partially satisfied in previous periods
263
241
Rail freight
241
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 2022 whose delivery was
completed in the current financial year.
Performance obligations relating to contracts partially unsatisfied
50 100
at year-end
50 100
57 700
Rail freight and ports
57 700
The Group expects revenue of R50,1 billion in future periods from performance obligations that were unsatisfied or partially unsatisfied at
31 March 2023, 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 2024
21 261
43
31 March 2025
9 941
20
31 March 2026
9 261
18
31 March 2027
9 632
19
31 March 2028 and beyond
5
—
Total
50 100**
100
9.
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
Transnet Pipelines is currently in a legal dispute with two customers relating to short payment for the transportation of crude. The customers have shown
no intention to pay the amount. In light of the above, and in accordance with IFRS 15.9(e), Transnet cannot conclude that it is probable that it will collect
the consideration to which it will be entitled in exchange for the goods or services transferred to the customers and has therefore not recognised the
revenue. The total amount short paid by the customers as at 31 March 2023 is R1 236 million (2022: R675 million).
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
158
49
Accommodation and refreshments
49
158
1 317
1 553
Electronic data costs
1 553
1 317
8 002
8 797
Energy costs
8 797
8 002
115
204
External audit fees (refer note 4.1)
204
115
574
452
Haulage costs
452
574
605
684
Health and sanitation
684
605
300
375
Insurance
375
300
2 392
3 247
Maintenance costs
3 247
2 392
418
598
Managerial and technical consulting fees
598
418
803
1 209
Material costs
1 209
803
1 223
1 055
Lease expenses (refer note 4.1)
1 055
1 223
26 194
24 655
Personnel costs
24 655
26 194
36
56
Printing and stationery
56
36
137
82
Loss on disposal of property, plant and equipment
82
137
—
4
Loss on disposal of intangible assets
4
—
55
43
Promotions and advertising
43
55
1 009
1 181
Rates and taxes
1 181
1 009
1 738
2 212
Security
2 212
1 738
156
193
Telecommunications
193
156
74
106
Transport
106
74
15
30
Research and development costs
30
15
487
622
Water
622
487
582
(18)
Third party claims1
(18)
582
545
488
Other expenses2
488
545
(1 925)
(1 958)
Other income3
(1 958)
(1 925)
45 010
45 919
45 919
45 010
\endash
Includes a reversal of a legal claim due to the application of the in duplum principal of R380 million (2022: R75 million raised).
\endash
Includes COVID-19 related expenses of R7 million (2022: R109 million).
Other expenses is mainly made up of corporate and social investment costs, travel costs and environmental management expense (2023: R2 million
and 2022: R323 million).
\endash
6061
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
Depreciation and derecognition (refer note 9)
8 100
7 908
Depreciation and derecognition – owned assets at historic cost
7 908
8 100
66
58
Aircraft
58
66
184
180
Floating craft
180
184
281
245
Land and land improvements
245
281
882
750
Buildings and structures
750
882
637
512
Machinery, equipment and furniture
512
637
24
25
Permanent way and works
25
24
5 993
6 125
Rolling stock and containers
6 125
5 993
33
13
Vehicles
13
33
5 940
7 249
Depreciation and derecognition – owned assets revalued portion
7 249
5 940
1 971
2 994
Rail infrastructure
2 994
1 971
1 065
1 092
Pipeline networks
1 092
1 065
2 904
3 163
Port facilities
3 163
2 904
602
657
Depreciation and derecognition – right-of-use assets at historic cost
657
602
44
8
Buildings and structures
8
44
5
2
Machinery, equipment and furniture
2
5
2
1
Permanent way and works
1
2
551
646
Vehicles
646
551
14 642
15 814
15 814
14 642
284
Amortisation of intangible assets (refer note 11)
284
205
Software and licences
205
14 847
16 098
Total depreciation, derecognition and amortisation
16 098
14 847
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:
203
External audit fees
203
32
Audit fees – current year
32
83
—
Audit fees – prior year
—
83
—
1
Fees for audit-related and other services
1
—
115
204
204
115
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
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
20
Variable lease payments not included in the measurement
20
25
of lease liabilities
25
38
13
Expenses relating to short-term leases
13
38
1 160
1 022
Expenses relating to leases of low-value assets
1 022
1 160
1 223
1 055
1 055
1 223
14
Directors’ and executives’ emoluments (refer note 38)
14
14
Executive directors
14
6
6
Non-executive directors
6
6
72
73
Senior executives
73
72
92
93
93
92
4.2.1
(Reversal of impairment)/impairment of financial assets
381
272
Trade receivables from contracts with customers
272
381
34
(1 157)
Other receivables*
(1 157)
34
415
(885)
(885)
415
* The impairment reversal relates mainly to the settlement of old debt
by Prasa.
4.2.2
Impairment and devaluation of non-financial assets**
2 124
4 413
Property, plant and equipment (refer note 9)
4 413
2 124
—
75
Investment property (refer note 10)
75
—
(5)
4
Intangible assets (refer note 11)
4
(5)
2 119
4 492
4 492
2 119
** Primarily due to property, plant and equipment impairments, resulting
from the flooding in KZN, the physical verification exercise at Freight Rail,
derailments and the index valuation on port operating assets.
4.3
Dividends received
9
34
Dividends from associates
—
—
4.4
Post-retirement benefit obligation expense
11
9
Transport Pension Fund: Transnet Sub-fund
9
11
—
—
Transnet Second Defined Benefit Fund
—
—
4
5
Transnet Top Management pensions
5
4
39
36
Transnet Workmen’s Compensation Act pensioners
36
39
21
17
Transnet SATS pensioners’ post-retirement medical benefits
17
21
26
21
Transnet employees’ post-retirement medical benefits
21
26
89
69
Other post-retirement and medical benefits (refer note 23)
69
89
190
157
157
190
6263
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
9 814
1 054
Fair value adjustment of investment property (refer note 10)
1 054
9 814
288
713
Derivative fair value adjustments (refer note 14)
713
288
48
(109)
Fair value adjustments on firm commitments
(109)
48
25
(92)
Fair value adjustments on other financial assets held at FVTPL
(92)
25
10 175
1 566
1 566
10 175
(2)
(42)
Net foreign exchange gains on translation
(42)
(2)
57
52
Discounts on bonds amortised
52
57
192
217
Interest on lease liabilities
217
192
275
240
Unwinding of discounts on provisions
240
275
11 370
13 058
Interest cost – financial liabilities at amortised cost
13 058
11 370
11 892
13 525
Gross finance costs
13 525
11 892
(1 208)
(1 338)
Borrowing costs capitalised
(1 338)
(1 208)
10 684
12 187
12 187
10 684
* The weighted average capitalisation rate on funds borrowed generally
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
8.1 Tax recognised in other comprehensive income
Arising on the tax effects of items recognised in comprehensive income:
(122)
Gain on revaluation of pipeline networks and decommissioning
(122)
(210)
restoration liability
(210)
(986)
(1 117)
Gain on revaluation of port facilities and decommissioning liability
(1 117)
(986)
(1 794)
(264)
Gain on revaluation of rail infrastructure
(264)
(1 794)
(568)
370
Loss/(gain) on revaluation of land, building and structures
370
(568)
(1)
(2)
Gain on revaluation of investments to market value (Rumo Ltd)
(2)
(1)
—
—
Gain on revaluation of debt instrument
—
(3)
1
(146)
Cash flow hedge (gain)/loss
(146)
1
(22)
(2)
Actuarial gain on post-retirement benefit obligations
(2)
(22)
774
—
Impact of change in corporate tax rate
—
774
(2 806)
(1 283)
Total tax recognised in other comprehensive income
(1 283)
(2 809)
is 12,37% per annum (2022: 9,11% per annum).
7
120
Bank deposits
120
21
105
66
Financial assets at amortised cost
66
105
112
186
186
126
—
—
South African normal tax
—
10
– Current year
435
(1 649)
Deferred tax (refer note 26)
(1 649)
431
– Current year
435
(1 649)
(1 649)
441
%
%
Reconciliation of tax rate
%
%
27,00
27,00
Standard rate — South African normal tax
27,00
27,00
(19,08)
(4,43)
Adjustment for differences
(4,49)
(18,97)
(6,59)
(3,76)
Expenses not included for tax purposes
(3,76)
(6,48)
0,13
(0,56)
Permanent provisions
(0,56)
0,13
(2,54)
Depreciation on property, plant and equipment (PPE) not
(2,54)
3,56
subject to tax allowances
3,56
(1,46)
(1,20)
Impairment of PPE
(1,20)
(1,46)
(9,65)
0,79
Fair value adjustments
0,79
(9,65)
(0,21)
(0,06)
Disposal of fixed assets not subject to tax allowances
(0,06)
(0,21)
0,58
(0,17)
Capital legal, professional and other expenses
(0,17)
0,69
0,02
—
Disallowed donations
—
0,02
0,44
(0,02)
Fruitless and wasteful expenditure
(0,02)
0,44
—
0,13
Exempt local dividends
—
—
(12,49)
(0,80)
Adjustment to deferred tax charge
(0,73)
(12,49)
(0,26)
0,13
Capital gain on disposal of fixed assets
0,13
(0,26)
0,84
(0,58)
PPE adjustments
(0,58)
0,84
(0,09)
(0,27)
Firm commitments
(0,27)
(0,09)
0,51
(0,08)
Provisions not through the income statement
(0,01)
0,51
(13,49)
—
Change in corporate tax rate
—
(13,49)
300 738
300 235
496 809
516 428
(196 071)
(216 193)
236 441
244 360
507
507
5 036
5 020
6 044
5 763
26 115
25 805
13 373
13 593
1 426
1 459
146 173
150 020
4 377
4 638
33 423
37 555
(79 376)
(85 415)
(367)
(367)
(1 852)
(2 015)
(1 802)
(2 036)
(11 141)
(11 899)
(9 495)
(9 288)
(258)
(258)
(52 536)
(57 417)
(2 005)
(2 135)
**
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
300 235
300 738
516 428
496 809
(216 193)
(196 071)
244 360
236 441
**
474
5 020
5 036
5 763
6 044
25 805
26 115
13 593
13 373
1 459
1 426
150 020
146 173
4 638
4 377
37 555
33 423
(85 415)
(79 376)
***
(309)
(2 015)
(1 852)
(2 036)
(1 802)
(11 899)
(11 141)
(9 288)
(9 495)
r
(236)
(57 417)
(52 536)
(2 135)
(2 005)
7,92
22,57
Effective rate of tax
22,51
8,03
The income statement credit is comprised mainly of deferred tax. The credit arose mainly due to the loss before tax for the year.
9.
Capital work-in-progress includes R5 327 million (2022: R5 478 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 149 diesel locomotives from Bombardier Transportation South Africa Pty (Ltd) (BT) respectively. Total capital work-in-progress under the three
contracts at 31 March 2023 was R13 781 million (2022: R13 026 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 three years.
6465
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
(11 904)
(14 414)
Accumulated impairment (refer note 4.2.2)
(14 414)
(11 904)
(191)
(94)
– Floating craft
(94)
(191)
(75)
(260)
– Buildings and structures
(260)
(75)
(266)
(291)
– Machinery, equipment and furniture
(291)
(266)
—
(15)
– Permanent way and works
(15)
—
(7 904)
(10 043)
– Rolling stock and containers
(10 043)
(7 904)
(66)
(65)
– Vehicles
(65)
(66)
(3 402)
(3 646)
– Capital work-in-progress
(3 646)
(3 402)
144 531
Net book value of property, plant and equipment stated
144 531
145 161
at historical cost
145 161
Revaluation
260 368
272 068
Gross carrying value
272 068
260 368
63 019
65 047
– Pipeline networks
65 047
63 019
125 171
132 483
– Port facilities
132 483
125 171
72 178
74 538
– Rail infrastructure
74 538
72 178
(102 365)
(112 309)
Accumulated depreciation
(112 309)
(102 365)
(26 233)
(28 676)
– Pipeline networks
(28 676)
(26 233)
(54 203)
(59 491)
– Port facilities
(59 491)
(54 203)
(21 929)
(24 142)
– Rail infrastructure
(24 142)
(21 929)
(2 426)
(4 055)
Accumulated impairment
(4 055)
(2 426)
(207)
(218)
– Pipeline networks
(218)
(207)
(1 862)
(2 552)
– Port facilities
(2 552)
(1 862)
(357)
(1 285)
– Rail infrastructure
(1 285)
(357)
155 704
Net book value of property, plant and equipment stated
155 704
155 577
at revalued amounts
155 577
300 738
300 235
Total net book value
300 235
300 738
Land improvements, buildings and structures
A register of land, buildings and structures is available for inspection
at the Company.
During the year, the Group transferred R85 million from (2022: R2,8 billion
to) investment property to 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
2 152
Included in property, plant and equipment are assets under lease with
2 152
2 008
a carrying value of
2 008
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
9.Property, plant and equipment continued
Pipeline networks
Pipeline networks were revalued at 31 March 2023 based on the depreciated
replacement cost (DRC) and discounted cash flow methods. Details of
significant unobservable inputs applied in the valuation are provided in
the table on page 69 in note 9.
An external index valuation was performed as at 31 March 2023 by
Ernst and Young, an independent firm of professional valuers, on the basis
of the depreciated replacement cost methodology.
As at 31 March 2023, the index valuation resulted in a fair value of R39,3 billion
for all assets (2022: R38,1 billion based on an index valuation conducted by
Ernst and Young). The discounted cash flow method resulted in a fair value of
R42,7 billion at 31 March 2023 for all assets (2022: R39,1 billion). The index
valuation was applied to assets in the old pipeline network and resulted in a net
increase of R453 million (2022: R905 million) 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.
36 153
Fair value hierarchy
36 153
36 579
Level 3 – significant unobservable inputs*
36 579
31 582
30 906
The historic cost carrying values of these assets amount to
30 906
31 582
Port facilities
Port infrastructure
Port infrastructure was revalued at 31 March 2023 based on the depreciated
optimised replacement cost and discounted cash flow methods.
The discounted cash flow method resulted in a fair value of R62,9 billion
(2022: R61,4 billion) as at 31 March 2023, which resulted in an increase
of R2,8 billion (2022: R3,9 billion) to the carrying value of the port
infrastructure assets.
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 2023 were 11,11% and 5,51%
respectively. For example, a 0,1% change in the discount rate would result
in a fair value change of R1,5 billion. Similarly, a 0,1% change in the terminal
growth rate would result in the fair value changing by R1,1 billion.
Port operating assets
An index valuation was applied to port operating assets and resulted in an
increase of R1,44 billion (2022: R169,3 million decrease) in the carrying
value of the port operating assets. As at 31 March 2023, the fair value of
port operating assets based on the index valuation amounts to R8,2 billion
(2022: R7,7 billion).
70 440
Fair value hierarchy
70 440
69 106
Level 3 – significant unobservable inputs*
69 106
22 629
22 335
The historical carrying values of these assets amount to
22 335
22 629
*For more detail regarding the measurement of level 3 fair values refer to the table on page 69 in note 9.
6667
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
Rail infrastructure
Rail infrastructure was revalued on 31 March 2023 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 R772 million (2022: R6,643 million) at
31 March 2023.
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 R992 million, whereas the same change in the discount rate
will change the asset value by R3,1 billion.
49 111
Fair value hierarchy
49 111
49 892
Level 3 – significant unobservable inputs*
49 892
41 865
41 318
The historical carrying values of these assets amount to
41 318
41 865
*For more detail regarding the measurement of level 3 fair values refer to the table on page 69 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 effect of the changes on future periods cannot be reliably
estimated. 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 R2,3 million (2022: R49 million decrease).
Useful lives
The useful lives review was performed in line with Group’s accounting policy. The review done was performed by asset owners, users and specialists.
The results of the assessment were a net decrease of R68 million (2022: R51 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 2023 that are still in use have a historic cost amount of R5,4 billion (2022: R7,2 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 of.
Property, plant and equipment pledged as security for loans
Rolling stock and containers includes locomotives with a carrying value of R23 678 million (2022: R28 727 million) which are pledged as security for
loans amounting to R15 391 million (2022: R15 216 million) raised to fund the acquisition of the locomotives (refer note 36).
Insurance compensation
R216,4 million was received from insurance as compensation in respect of property, plant and equipment that was damaged, as a result of the flooding in
Kwazulu-Natal in April 2022.
Annual financial statements
Notes to the annual financial statements
*
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 2023.
Asset group
Valuation technique
Significant unobservable inputs
Range (weighted average)
Pipeline networks
Depreciated replacement cost
Replacement cost new
r
(DRC)
Physical condition assessment
r
Obsolescence
r
Remaining useful life
r
Discounted cash flow
Discount rate (%)
14,17
Terminal growth rate (%)
4,63
Valuation period (years)
10
Port infrastructure
Depreciated optimised
Replacement cost new
r
replacement cost***
Physical condition assessment
r
Obsolescence
r
Remaining useful life
r
Indices – Marine index*
104,76
Dredging index*
110,6
Discounted cash flow
Discount rate (%)
11,11
Terminal growth rate (%)
5,51
Valuation period (years)
7
Port operating assets
Depreciated optimised
Replacement cost new
r
replacement cost***
Physical condition assessment
r
Obsolescence
r
Remaining useful life
r
PPI – General and special purpose
machinery (142,1)**
122,50
PPI – Transport equipment (142,7)**
104,30
Discounted cash flow
Discount rate (%)
13,64
Terminal growth rate (%)
4,20
Valuation period (years)
20
Rail infrastructure
Depreciated optimised
Replacement cost new
r
replacement cost***
Physical condition assessment
r
Obsolescence
r
Remaining useful life
r
Discounted cash flow
Discount rate (%)
11,76
Terminal growth rate (%)
4,60
Valuation period (years)
20
\emdash
Base year = 2021.
1
Base year = 2022.
*
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.
1
Range or weighted average not applicable.
6869
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2023
PPE reconciliation
Buildings
Machinery
Permanent
Rail
Rolling
Capital
31 March
Floating
equipment
Pipeline
Port
Aircraft
Land
and
and
way and
infra-
stock and
Vehicles
work-in-
2023
craft
structures
furniture
works
networks
facilities
structure
containers
progress
Total
Company and Group
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
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
(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)
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
Adjustment to asset classes*
—
—
—
5
26
—
—
—
—
461
—
(492)
—
Opening net carrying value at 1 April
165
2 993
4 242
14 899
3 612
1 190
36 579
69 106
49 892
85 733
2 306
30 021
300 738
Current year movements
33
1
27
4
177
—
—
—
2 791
3 145
2
6 034
12 214
Replacements
Expansions
—
—
—
3
10
—
—
—
—
3
3
857
876
Acquisition through lease
—
—
—
—
—
—
—
—
—
—
781
—
781
Change in decommissioning liability
—
—
—
(37)
—
—
—
—
—
—
—
—
(37)
Disposals
—
—
—
—
—
—
(1)
(7)
(13)
(9)
(17)
—
(47)
Depreciation
(58)
(180)
(245)
(758)
(514)
(26)
(1 092)
(3 163)
(2 239)
(5 709)
(659)
—
(14 643)
Derecognition
—
—
—
—
—
—
—
—
(755)
(416)
—
—
(1 171)
Revaluation/(devaluation) adjustment recognised in other
—
—
(319)
(721)
—
—
453
4 240
772
—
—
—
4 425
comprehensive income
(Impairment)/reversal of impairment recognised in profit or loss
—
97
—
(185)
(83)
(14)
(12)
(782)
(929)
(2 261)
—
(244)
(4 413)
Transferred to intangibles assets
—
—
—
—
—
—
—
—
—
—
—
(233)
(233)
Transfers to non-current assets classified as held-for-sale
—
—
—
—
44
—
—
(55)
—
(12)
—
—
(23)
Transfer from/(to) investment property
—
—
(9)
94
—
—
—
—
—
—
—
—
85
Foreign exchange adjustment
—
—
—
—
—
—
—
—
—
—
—
2
2
Borrowing costs capitalised
—
—
—
—
—
—
—
—
—
—
—
1 338
1 338
Release of firm commitment
—
—
—
—
—
—
—
—
—
—
—
(1)
(1)
Unrealised firm commitment
—
—
—
—
—
—
—
—
—
—
—
228
228
Transfer from/(to) inventory
—
—
—
—
—
—
—
—
—
101
15
—
116
Transfer from capital work in progress to assets
—
—
31
347
768
36
226
1 101
(408)
1 985
7
(4 093)
—
Total current year movement
(25)
(82)
(515)
(1 253)
402
(4)
(426)
1 334
(781)
(3 173)
132
3 888
(503)
Closing carrying value
140
2 911
3 727
13 646
4 014
1 186
36 153
70 440
49 111
82 560
2 438
33 909
300 235
Made up as follows:
507
5 020
5 763
25 805
13 593
1 459
65 047
132 483
74 538
150 020
4 638
37 555
516 428
Historical cost and revaluation
Accumulated depreciation
(367)
(2 015)
(2 036)
(11 899)
(9 288)
(258)
(28 676)
(59 491)
(24 142)
(57 417)
(2 135)
—
(197 724)
Accumulated impairment
—
(94)
—
(260)
(291)
(15)
(218)
(2 552)
(1 285)
(10 043)
(65)
(3 646)
(18 469)
Closing carrying value at 31 March
140
2 911
3 727
13 646
4 014
1 186
36 153
70 440
49 111
82 560
2 438
33 909
300 235
Assets held under right-of-use contracts
Carrying values of PPE comprise owned and leased assets, as
follows:
140
2 911
3 724
13 611
3 940
1 186
36 153
70 438
49 111
82 560
400
33 909
298 083
– Property, plant and equipment owned
– Right-of-use assets
—
—
3
35
74
—
—
2
—
—
2 038
—
2 152
Total
140
2 911
3 727
13 646
4 014
1 186
36 153
70 440
49 111
82 560
2 438
33 909
300 235
Right-of-use assets
—
—
—
—
—
—
—
—
—
—
781
—
781
Additions during the year
Depreciation expense during the year (included above)
—
—
—
(8)
(2)
(1)
—
—
—
—
(646)
—
(657)
7071
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2023
905
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
Company and Group
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
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)
(3 202)
(12 518)
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)
Foreign exchange 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
367
601
81
294
1 112
638
5 094
8
(8 401)
—
Total current year movement
(15)
(369)
(1 343)
(34)
(60)
55
99
2 305
9 040
(701)
397
(1 410)
7 964
Closing carrying value
165
2 993
4 242
14 899
3 612
1 190
36 579
69 106
49 892
85 733
2 306
30 021
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)
—
(75)
(266)
—
(207)
(1 862)
(357)
(7 904)
(66)
(3 402)
(14 330)
Closing carrying value at 31 March
165
2 993
4 242
14 899
3 612
1 190
36 579
69 106
49 892
85 733
2 306
30 021
300 738
PPE comprise owned and leased assets, as follows
(at carrying value):
– Property, plant and equipment owned
165
2 993
4 239
14 861
3 601
1 175
36 579
69 104
49 892
85 733
367
30 021
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
14 899
3 612
1 190
36 579
69 106
49 892
85 733
2 306
30 021
300 738
Right-of-use assets
Additions during the year
—
—
—
—
—
—
—
—
—
—
998
—
998
Depreciation expense during the year (included above)
—
—
—
(44)
(5)
(3)
—
—
—
—
(393)
—
(445)
7273
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
16 506
29 112
Carrying value at the beginning of the year
29 112
16 506
2 790
(85)
Transferred (to)/from property, plant and equipment (refer note 9)
(85)
2 790
9 814
1 054
Fair value adjustment recognised in profit and loss (refer note 5)
1 054
9 814
2
89
Additions
89
2
—
—
Transferred to assets classified as held-for-sale (refer note 20)
—
—
—
(75)
Impairment (refer note 4.2.2)
(75)
—
29 112
30 095
Carrying value at the end of the year*
30 095
29 112
30 358
Fair value hierarchy
30 358
29 861
Level 3 – significant unobservable inputs
29 861
(149)
The carrying amount of investment property at the end of the year excludes the lease smoothing adjustments of R263 million (2022: R749 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 2023 was carried out by independent external valuers, and conforms to the Property Valuers Profession Act,
No. 47 of 2000. A full valuation was performed for one third of the investment property portfolio and a desktop valuation was undertaken for the
remainder of the property.
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 comparative method was applied to instances where the capitalisation rates were not available. The significant
unobservable inputs applied are the capitalisation rates and the net rental/m2, which are detailed in the table below.
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 R3 074 million
(2022: R2 986 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 383 million (2022: R1 305 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.
Significant unobservable inputs detail – 2023
Capitalistion rate method
Capitalisation rate (%)
Port – Land
Land
Industrial
Office
Residential
Retail
Other
Mixed use
Minimum
9,50%
n/a
9,75%
9,00%
n/a
9,75%
10,00%
9,00%
Maximum
12,00%
n/a
12,00%
13,00%
n/a
12,50%
11,00%
12,00%
Weighted average
10,20%
n/a
10,92%
9,49%
n/a
10,57%
10,01%
11,37%
Net rentals (R/m2 per month)
Minimum
R1,92
n/a
R15,00
R19,22
R16,69
R18,02
R3,93
R15,94
Maximum
R48,87
n/a
R42,04
R122,89
R16,69
R207,57
R21,87
R137,39
Weighted average
n/a
n/a
R31,30
R76,87
R16,69
R77,53
R3,93
R61,37
Comparative method
Price (R/m2)
Minimum
n/a
R1,00
R1 200,00
n/a
R400,00
n/a
n/a
n/a
Maximum
n/a
R1 600,00
R1 200,00
n/a
R400,00
n/a
n/a
n/a
Weighted average
n/a
R224,35
R1 200,00
n/a
R400,00
n/a
n/a
n/a
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
740
704
Intangible assets
704
740
3 913
3 724
Cost
3 724
3 913
(3 173)
(3 020)
Accumulated amortisation and impairment
(3 020)
(3 173)
Comprising:
704
Finite life intangible assets
704
740
Software and licences: carrying value*
740
3 913
3 724
Cost
3 724
3 913
3 883
3 913
Balance at the beginning of the year
3 913
3 883
5
51
Additions
51
5
(24)
(473)
Disposals
(473)
(24)
49
233
Transfers from property, plant and equipment (refer note 9)
233
49
(3 173)
(3 020)
Accumulated amortisation and impairment
(3 020)
(3 173)
(2 994)
(3 173)
Balance at the beginning of the year
(3 173)
(2 994)
24
441
Disposals
441
24
(205)
(284)
Amortisation (refer note 3)
(284)
(205)
5
(4)
(Impairment)/reversal of impairment (refer note 4.2.2)
(4)
5
(3)
—
Transfers from property, plant and equipment (refer note 9)
—
(3)
Includes capital-work-in-progress of R89 million (2022: R162 million).
Investments in subsidiaries (refer note 37)
——Shares at carrying value
——Amounts owing by subsidiaries
——
——Provision for impairment and losses
——
Investments in associates and joint ventures
(refer note 37)
8
8
73
93
8
8
Balance at the beginning of the year
93
108
—
—
Share of profit/(loss)
14
(6)
—
—
Dividends received
(34)
(9)
8
Directors’ valuation of unlisted investments in associates and
73
8
joint ventures
93
Income/(loss) from associates and joint ventures
14
(6)
7475
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
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.
7 281
3 418
Derivative financial assets
3 418
7 281
8 100
7 281
Opening balance
7 281
8 100
(1 171)
4 546
Fair value adjustments
4 546
(1 171)
352
(8 409)
Derivatives settled and raised
(8 409)
352
1 507
583
Derivative financial liabilities
583
1 507
2 427
1 507
Opening balance
1 507
2 427
265
(259)
Fair value adjustments
(259)
265
(1 185)
(665)
Derivatives settled and raised
(665)
(1 185)
(1 436)
4 805
Net fair value adjustments
4 805
(1 436)
288
713
Derivative fair value adjustments (refer note 5)1
713
288
(1 663)
(1 226)
Finance costs
(1 226)
(1 663)
(61)
5 318
Recognised in other comprehensive income (refer note 22)
5 318
(61)
Comprise the following financial instruments:
787
3 418
3 418
787
Non-current assets
787
3 418
Cross-currency swaps and options
3 418
787
6 494
—
Current assets
—
6 494
30
—
Forward exchange contracts
—
30
6 464
—
Cross-currency swaps and options
—
6 464
1 458
567
Non-current liabilities
567
1 458
2
—
Forward exchange contracts
—
2
1 456
567
Interest rate swaps and options
567
1 456
49
16
Current liabilities
16
49
49
16
Forward exchange contracts
16
49
Ratio
Ratio
Hedge accounting
Ratio
Ratio
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.
141
Comprised of hedge ineffectiveness gain of R260 million (2022: R75 million loss) from cash flow hedges, fair value gains of R108 million (2022: R48 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 R345 million (2022: R411 million gain).
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
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 2023, 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 2023 are as follows:
(19)
(16)
Currency bought forward – United States Dollar loss
(16)
(19)
(2)
—
Currency bought forward – Euro loss
—
(2)
The net fair value loss recognised in profit and loss on these fair value
hedges during the year was a R4 million loss (2022: nil). This net fair value
adjustment comprised of a gain of R36 million (2022: R48 million gain) with
respect to foreign exchange risk on the firm commitments, and a loss of
R40 million (2022: R48 million loss) on the forward exchange contracts.
The nominal values of these forward exchange contracts at 31 March 2023
are as follows:
376
Currency bought forward – Rand equivalent
376
652
United States Dollar
652
52
—
Euro
—
52
million
Currency bought forward – foreign currency
million
20
20
41
United States Dollar
41
3
—
Euro
—
3
Cash flow hedges
Interest rate swaps
On 31 March 2023, 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
877
11,83 fixed
3 month JIBAR + 2,6%
02-Dec-2030
Bank of China – JHB Branch
Nedbank
1 107
11,83 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Nedbank Ltd
Nedbank
372
11,83 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Futuregrowth Asset Management (Pty) Ltd
Nedbank
372
11,83 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Old Mutual Life Assurance Co (SA) Ltd (R217 million) and
Old Mutual Specialised Finance (Pty) Ltd (R155 million)
Nedbank
372
11,83 fixed
3 month JIBAR + 2,7%
02-Dec-2030
ABSA Bank Ltd
Nedbank
877
12,27 fixed
3 month JIBAR + 2,6%
02-Dec-2030
Bank of China – JHB Branch
Nedbank
1 107
12,27 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Nedbank Ltd
Nedbank
1 860
12,27 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Old Mutual Life Assurance Co (SA) Ltd (R316 million) and
Old Mutual Specialised Finance (Pty) Ltd (R234 million)
TSDBF Old Mutual*
550
12,27 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Futuregrowth Asset Management (Pty) Ltd
Nedbank
744
12,27 fixed
3 month JIBAR + 2,7%
02-Dec-2030
Investec Bank Ltd
TSDBF Old Mutual*
3 496
12,07 fixed
3 month JIBAR + 2,0%
22-Feb-2028
Liberty Group Ltd
TSDBF Old Mutual*
924
11,15 fixed
3 month JIBAR + 1,75%
19-Jul-2032
Old Mutual Life Assurance Company of South Africa (OMLACSA)
(R434 million) and Old Mutual Specialised Finance (Pty) Ltd (OMSFIN)
(R310 million)
Nedbank
744
11,15 fixed
3 month JIBAR + 2,05%
31-Mar-2033
Standard Bank Corporate Investment Bank
TSDBF Old Mutual*
300
11,15 fixed
3 month JIBAR + 1,65%
21-Aug-2024
Total exposure
13 702
*These interest-rate swap contracts were entered into with Transnet Second Defined Benefit Fund and have a carrying value of R224 million (2022: R582 milion).
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 R308 million gain (2022: R22 million gain).
The amount recycled to profit and loss to offset the hedged risks was a R567 million loss (2022: R986 million loss), included in finance costs.
7677
Notes to the annual financial statements
for the year ended 31 March 2023
14.Derivative financial assets and liabilities continued
Cash flow hedges continued
Cross-currency interest rate swaps
On 31 March 2023, 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:
Lender
Hedge counterparty
Nominal
Hedge interest
Hedge interest
Maturity
USD million
rate payable
rate receivable
date
TNUS 28 GMTN US
Dollar bond
Tranche 1
RMB/Division of FirstRand Bank Ltd
200
13,72% fixed (ZAR)
8,25% fixed (USD)
7-Feb-2028
Tranche 2
Goldman Sachs
300
13,075% fixed (ZAR)
8,25% fixed (USD)
7-Feb-2028
Tranche 3
Deutsche Bank
500
13,64% fixed (ZAR)
8,25% fixed (USD)
7-Feb-2028
Deutsche Bank
SOFR loan
Tranche 1
JP Morgan
435
SOFR + 5,33%
SOFR + 4,65129%
21-Jun-2027
Tranche 2
RMB/Division of FirstRand Bank Ltd
250
SOFR + 5,26%
SOFR + 4,65129%
21-Jun-2027
China Development
Bank (CDB)
Loan 1
JPMorgan Chase Bank – JHB Branch
227
3-month JIBAR + 4,35%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 2
JPMorgan Chase Bank – JHB Branch
11
3-month JIBAR + 4,33%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 3
JPMorgan Chase Bank – JHB Branch
10
3-month JIBAR + 4,365%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 4
JPMorgan Chase Bank – JHB Branch
5
3-month JIBAR + 4,360%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 5
JPMorgan Chase Bank – JHB Branch
15
3-month JIBAR + 4,31%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 6
JPMorgan Chase Bank – JHB Branch
14
3-month JIBAR + 4,30%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 7
JPMorgan Chase Bank – JHB Branch
15
3-month JIBAR + 4,295%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 8
JPMorgan Chase Bank – JHB Branch
12
3-month JIBAR + 4,17%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 9
JPMorgan Chase Bank – JHB Branch
12
3-month JIBAR + 4,25%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 10
JPMorgan Chase Bank – JHB Branch
21
3-month JIBAR + 4,07%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 11
JPMorgan Chase Bank – JHB Branch
6
3-month JIBAR + 4,01%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 12
JPMorgan Chase Bank – JHB Branch
15
3-month JIBAR + 3,97%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 13
JPMorgan Chase Bank – JHB Branch
10
3-month JIBAR + 4,01%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 14
JPMorgan Chase Bank – JHB Branch
20
3-month JIBAR + 3,84%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 15
JPMorgan Chase Bank – JHB Branch
8
3-month JIBAR + 3,84%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 16
JPMorgan Chase Bank – JHB Branch
10
3-month JIBAR + 3,96%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 17
JPMorgan Chase Bank – JHB Branch
5
3-month JIBAR + 3,995%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 18
JPMorgan Chase Bank – JHB Branch
14
3-month JIBAR + 4,00%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 19
JPMorgan Chase Bank – JHB Branch
7
3-month JIBAR + 3,94%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 20
JPMorgan Chase Bank – JHB Branch
17
3-month JIBAR + 3,88%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 21
JPMorgan Chase Bank – JHB Branch
10
3-month JIBAR + 3,89%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 22
JPMorgan Chase Bank – JHB Branch
14
3-month JIBAR + 3,89%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 23
JPMorgan Chase Bank – JHB Branch
14
3-month JIBAR + 3,88%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 24
JPMorgan Chase Bank – JHB Branch
14
3-month JIBAR + 3,91%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 25
JPMorgan Chase Bank – JHB Branch
13
3-month JIBAR + 3,86%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 26
JPMorgan Chase Bank – JHB Branch
10
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
13
3-month JIBAR + 3,82%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 29
JPMorgan Chase Bank – JHB Branch
21
3-month JIBAR + 3,775%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 30
JPMorgan Chase Bank – JHB Branch
23
3-month JIBAR + 3,78%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 31
JPMorgan Chase Bank – JHB Branch
11
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
7
3-month JIBAR + 3,78%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 34
JPMorgan Chase Bank – JHB Branch
15
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
14
3-month JIBAR + 3,79%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 37
JPMorgan Chase Bank – JHB Branch
13
3-month JIBAR + 3,85%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 38
JPMorgan Chase Bank – JHB Branch
7
3-month JIBAR + 3,84%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 39
JPMorgan Chase Bank – JHB Branch
6
3-month JIBAR + 3,82%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 40
JPMorgan Chase Bank – JHB Branch
32
3-month JIBAR + 3,66%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Loan 41
JPMorgan Chase Bank – JHB Branch
8
3-month JIBAR + 3,56%
3-month LIBOR + 2,57% (USD)
12-Jun-2030
Total exposure
2 397
Annual financial statements
Notes to the annual financial statements
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 R90 million gain (2022: R97 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 R4 713 million gain (2022: R898 million loss), included in finance costs.
The cash flows are projected to occur:
Semi-annually in July and January until February 2028 on the TNUS28 bond hedge;
Semi-annually in June and December until June 2027 on the Deutsche hedge; and
Quarterly until June 2030 on the CDB hedge.
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
The fair values of the cross-currency interest rate swaps at
2 846
31 March 2023 are as follows:
2 846
834
CDB
834
6 417
—
TNUS22
—
6 417
—
213
TNUS28
213
—
—
359
Deutsche Bank
359
—
The nominal amounts of the cross-currency interest rate swaps at
38 655
31 March 2023 are as follows:
38 655
26 506
South African Rand
26 506
1 811
2 397
United States Dollar
2 397
1 811
692
Day-one loss
692
796
Loss at the beginning of the year
796
—
705
Day one loss recognised
705
—
(104)
(139)
Amortised to profit and loss
(139)
(104)
692
1 258
Loss at the end of the year
1 258
692
The unamortised day-one loss is included within the long-term
financial assets.
15.Long-term loans and advances
—
—
—
—
Carrying value at the beginning of the year
—
—
—
—
—
—
Impairment
—
—
Comprising:
—
—
—
—
Other loans and advances*
Gross carrying value
464
451
451
464
(464)
(451)
Impairment
(451)
(464)
(6)
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 (2022: R260 million) was provided for as irrecoverable and the FNB housing loans of which the full balance of R191 million (2022: R204 million)
was provided for as irrecoverable.
7879
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
16.1
Long-term investments and long-term financial assets
1 394
2 262
Held at amortised cost1
2 259
946
220
128
Held at FVTPL2
128
220
1 614
2 390
2 387
1 166
16.2
Short-term investments
61
57
Short-term portion of other financial assets including resale agreements
57
61
61
57
57
61
16.3
Other non-current liabilities
3 371
3 318
Security of supply petroleum levy
3 318
3 371
358
2
Other3
2
358
3 729
3 320
3 320
3 729
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.
3 785
At weighted average cost
3 785
3 334
Maintenance material
3 334
677
626
Consumables
626
677
29
32
Work-in-progress1
32
29
(425)
(788)
Provision for stock obsolescence2
(788)
(425)
3 615
3 655
3 655
3 615
24
Included in work in progress are costs for contract assets (refer note 27).
25
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 2023 (2022: nil).
The cost of inventory used during the period of R1 209 million
(2022: R803 million) and the increase in the provision for obsolescence
of R363 million (2022: R106 million) are recognised in operating expenses
(refer note 2 – material costs).
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
18.Trade and other receivables
6 092
6 588
Trade receivables – net of allowances for credit losses
6 588
6 092
10 626
10 449
Trade receivables1
10 449
10 626
(4 534)
(3 861)
Allowance for expected credit losses
(3 861)
(4 534)
Prepayments and other amounts receivable – net of allowances
2 228
2 252
1 724
1 710
for credit losses2
2 256
2 783
Prepayments and other amounts receivable
2 807
2 270
(546)
(555)
Reversal/(allowance) for expected credit losses
(555)
(546)
7 802
8 816
8 840
7 816
(5 080)
Total allowance for expected credit losses
(5 080)
(4 102)
Opening balance
(4 102)
(1 903)
(191)
Raised
(191)
(1 903)
925
855
Utilised
855
925
(5 080)
(4 416)
Closing balance
(4 416)
(5 080)
(3 861)
Allowance for expected credit losses on trade receivables from contracts
(3 861)
(4 534)
with customers
(4 534)
(546)
(555)
Allowance for expected credit losses on other receivables
(555)
(546)
(5 080)
(4 416)
Total allowance for expected credit losses
(4 416)
(5 080)
1
Trade receivables include an amount of R4,3 billion (2022: R3,8 billion)
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
and accruals (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
3 467
13 528
Bank balances*
13 528
3 925
11
12
Cash
12
11
3 478
13 540
13 540
3 936
*Included in bank balances are restricted TPL Rehabilitation Trust accounts
amounting to nil (2022: R457 million).
8081
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
20.Assets classified as held-for-sale
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
22.Reserves
269
Non-current assets classified as held-for-sale
269
257
Property, plant and equipment1
257
229
257
Net carrying value at the beginning of the year
257
229
(37)
(11)
Disposals
(11)
(37)
65
23
Transferred from property, plant and equipment (refer note 9)
23
65
9
9
Investment property2
9
9
9
9
Fair value at the beginning of the year
9
9
41
48
Other investments3
48
41
38
41
Balance at the beginning of the year
41
38
3
7
Fair value movement during the year
7
3
307
326
Total assets transferred to non-current assets classified as
326
307
held-for-sale
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 2024.
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 2024. 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 2024 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.
30 000
Authorised
30 000
30 000
30 000 000 000 ordinary par value shares of R1 each
30 000
18 498
Issued
18 498
12 661
18 497 986 310 ordinary par value shares of R1 each
12 661
5 837 000 000 ordinary shares were issued to the South African Government in the current financial year.
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 (2023: actual 43,6%).
61 384
64 421
7 804
8 168
7 048
7 804
31
453
—(14)
28
(75)
60 457
64 602
56 403
60 457
4 092
4 240
\emdash
(253)
(7)
158
11 371
12 072
4 734
11 371
6 643
772
83
(71)
4 378
3 338
2 378
4 378
2 000
(1 040)
(22 626)
(23 759)
(958)
29
453
38
1
31
7
——
——
——
158
(9)
2 590
2 601
3 548
3 561
3 465
3 548
772
13
29
(960)
Revaluation reserve1
Revaluation of pipeline networks
Balance at the beginning of the year
Revaluation 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 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
Deferred tax impact of items relating to
revaluation to market value
Actuarial gains on post-retirement benefit obligations3 Gross
actuarial gains on post-retirement benefit obligations
Balance at the beginning of the year
Gains arising during the year
Deferred tax impact of net actuarial gains
64 421
61 384
8 168
7 804
7 804
7 048
38
905
—
(149)
64 602
60 457
60 457
56 403
4 240
4 092
\emdash
(179)
(9)
141
12 072
11 371
11 371
4 734
13
6 643
(6)
3 338
4 378
4 378
2 378
(1 040)
2 000
(23 759)
(22 626)
(960)
24
1
31
2
28
3
——
—(5)
—5
**
(7)
2 601
2 590
3 561
3 548
3 548
3 465
1
83
*
(958)
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.
32.
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.
33.
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.
8283
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
(583)
(192)
(192)
(583)
(821)
(284)
Gross cash flow hedging reserve
(284)
(821)
(816)
(821)
Balance at the beginning of the year
(821)
(816)
(61)
5 318
Gains/(losses) arising during the year
5 318
(61)
56
(4 781)
Transfer to foreign exchange differences
(4 781)
56
Deferred taxation impact of items relating to cash flow
92
92
238
hedging reserve
238
250
250
249
249
250
250
Share of pension fund surplus
249
249
67 324
62 006
Retained earnings
62 115
67 453
62 084
67 324
Balance at the beginning of the year
67 453
62 220
185
338
Transfers into retained earnings
338
185
5 055
(5 656)
(Loss)/profit for the year attributable to the equity holder
(5 676)
5 048
130 989
129 115
129 223
131 117
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.
776
729
Post-retirement benefit obligations
729
776
878
776
Balance at the beginning of the year
776
878
101
88
Income statement charge
88
101
(120)
(122)
Settlements during the year
(122)
(120)
(83)
(13)
Actuarial gains
(13)
(83)
Comprising:
—
—
—
Transport Pension Fund: Transnet Sub-fund (refer note 32.1.2)
—
—
—
Transnet Second Defined Benefit Fund (refer note 32.1.3)
—
—
53
50
Transnet Top Management Pensions (refer note 32.1.4)
50
53
327
Transnet Workmen’s Compensation Act pensioners
327
355
(refer note 32.1.5)
355
182
Transnet SATS Pensioners’ post-retirement medical benefits
182
193
(refer note 32.2.1)
193
170
Transnet employees post-retirement medical benefits
170
175
(refer note 32.2.2)
175
776
729
729
776
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
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
—
—
65
80
Balance at the beginning of the year
80
65
89
69
Income statement charge
69
89
(74)
(82)
Utilised during the year
(82)
(74)
80
67
67
80
(80)
(67)
Less: Short-term portion classified as current liabilities
(67)
(80)
—
—
Leave pay
—
—
2 621
2 419
Balance at the beginning of the year
2 419
2 621
431
548
Accruals recognised during the year
548
431
(633)
(521)
Utilised during the year
(521)
(633)
2 419
2 446
2 446
2 419
(2 419)
(2 446)
Less: Short-term portion classified as current liabilities
(2 446)
(2 419)
—
—
Incentive bonuses
—
—
109
27
Balance at the beginning of the year
27
109
297
277
Accruals recognised during the year
277
297
(271)
(224)
Utilised during the year
(224)
(271)
(108)
—
Reversal during the year
—
(108)
27
80
80
27
(27)
(80)
Less: Short-term portion classified as current liabilities
(80)
(27)
776
729
Total employee benefits
729
776
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
8485
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
24.Long-term borrowings (refer note 36)
92 301
78 729
78 729
92 301
77 626
92 301
Total long-term borrowings at the beginning of the year
92 301
77 626
9 959
32 762
Recognised in the reporting period
32 762
9 959
(125)
2 251
Foreign exchange differences
2 251
(125)
56
43
Amortisation of discount
43
56
(48 628)
Current portion of long-term borrowings redeemable within one year
(48 628)
4 785
transferred to short-term borrowings* (refer note 29)
4 785
Made up as follows:
56 862
Unsecured liabilities
56 862
77 534
Rand-denominated
77 534
44 504
37 574
Bonds at nominal value
37 574
44 504
(894)
(881)
Unamortised discounts
(881)
(894)
43 610
36 693
Bonds at carrying value1
36 693
43 610
33 924
20 169
Other unsecured liabilities2
20 169
33 924
—
17 734
17 734
—
—
17 734
Bonds at nominal value
17 734
—
—
—
Unamortised discounts
—
—
—
17 734
Bonds at carrying value
17 734
—
14 767
4 133
4 133
14 767
4 477
4 133
Rand-denominated**
4 133
4 477
10 290
—
Foreign currency-denominated6
—
10 290
92 301
78 729
Total long-term borrowings
78 729
92 301
32.
Includes the impact of the cash interest cover loan covenant breach as at the 31 March 2023, which resulted in affected loans of R32,7 billion in long-
term borrowings being reclassified to short-term borrowings in the current reporting period. Transnet secured waivers from all the lenders affected by the
covenant breach, with all matters appropriately closed.
32.
Includes lease liabilities of R1 741 million (2022: R1 575 million).
•
Rand denominated domestic bonds bear interest between 5,23% 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).
•
Rand denominated unsecured domestic loans are repayable over periods between 21 August 2024 and 31 March 2037, and bears interest at rates ranging
between 8,865% and 12,648% with floating rates linked to JIBAR.
•
Foreign currency bonds are denominated in United States Dollar, is redeemable on 6 February 2028, and bears interest at a rate of 8,25%.
•
Rand denominated secured loans are repayable on 17 September 2029 and bear interest at rates ranging between 9,592% and 10,37%.
•
Rand denominated lease liabilities bear interest at rates ranging between 7,9% and 12,12% with all rates fixed. These liabilities are repayable over periods
between 2024 and 2031 financial years.
•
Foreign currency secured loans are denominated in United States Dollar, bear interest at 3,37286% and are repayable on 12 June 2030 (applicable to
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
10 007
10 268
Comprising:
10 268
10 007
9 597
10 007
Long-term provisions at the beginning of the year
10 007
9 597
3 670
4 567
Provisions recognised during the year and unwinding of discounts
4 567
3 670
(3 052)
(4 460)
Provisions utilised
(4 460)
(3 052)
154
Decrease/(increase) in short-term provisions classified as
154
(208)
current liabilities
(208)
4 803
4 698
Third-party claims
4 698
4 803
4 358
4 803
Balance at the beginning of the year
4 803
4 358
1 603
838
Provisions recognised during the year
838
1 603
(1 158)
(943)
Utilised during the year
(943)
(1 158)
93
138
Customer claims
138
93
85
93
Balance at the beginning of the year
93
85
446
950
Provisions recognised during the year
950
446
(438)
(905)
Utilised during the year
(905)
(438)
2 311
2 769
Decommissioning liabilities
2 769
2 311
2 184
2 311
Balance at the beginning of the year
2 311
2 184
28
300
Provisions recognised during the year
300
28
198
208
Unwinding of discounts
208
198
(99)
(50)
Utilised during the year
(50)
(99)
3 784
3 404
Environmental liabilities
3 404
3 784
3 706
3 784
Balance at the beginning of the year
3 784
3 706
1 251
2 140
Provisions recognised during the year
2 140
1 251
77
32
Unwinding of discounts
32
77
(1 250)
(2 552)
Utilised during the year
(2 552)
(1 250)
—
—
Restructuring
—
—
24
—
Balance at the beginning of the year
—
24
(24)
—
Utilised during the year
—
(24)
15
104
Other*
104
15
31
15
Balance at the beginning of the year
15
31
67
99
Provisions recognised during the year
99
67
(83)
(10)
Utilised during the year
(10)
(83)
11 006
11 113
Total provisions
11 113
11 006
999
845
Less: Short-term provisions classified as current liabilities
845
999
301
277
Third-party claims
277
301
93
138
Customer claims
138
93
591
328
Environmental liabilities
328
591
14
102
Other*
102
14
10 007
10 268
Long-term provisions
10 268
10 007
33.
Other provisions include compensation for employees fund, uniform, clothing, repairs, maintenance and cleaning related provisions. These
provisions are expected to be paid within one to two years of the reporting date.
8687
Notes to the annual financial statements
for the year ended 31 March 2023
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. The discount rates applied in determining the provision, the sensitivity of
the provision amounts to changes in discount rates and the expected settlement dates are disclosed in the tables below.
Discount rate
Expected payment
dates
Decommissioning liability
6,50% – 12,74%
1 – 65 years
Environmental provisions
11,78% – 13,34%
1 – 20 years
2023
2022
Group and Company
R million
R million
Decommissioning liability
2 769
2 311
2 362
1% increase in discount rate
1 962
1% decrease in discount rate
3 319
2 787
Environmental provisions
3 404
3 784
1% increase in discount rate
3 285
3 619
1% decrease in discount rate
3 535
3 828
Restructuring
Provision for restructuring costs in terms of strategic plans. This provision was utilised in the prior reporting year.
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
44 700
44 334
Comprising:
44 314
44 680
41 459
44 700
Opening balance
44 680
41 440
435
(1 649)
Income statement charge (refer note 8)
(1 649)
431
2 806
1 283
Raised in other comprehensive income (refer note 8.1)
1 283
2 809
Analysis of major categories of temporary differences
21 641
23 537
23 557
21 661
Deferred tax assets
3 028
2 874
Provisions
2 874
3 028
1 086
1 322
Employee benefit obligations
1 322
1 086
1 315
1 205
Revenue received in advance and deferred income
1 205
1 315
561
632
Capitalised lease liability
632
561
1 149
1 116
Doubtful debts
1 116
1 149
125
—
Cross-currency swaps
—
125
14 223
16 267
Estimated tax loss
16 267
14 223
154
121
Other
141
174
66 341
67 871
Deferred tax liabilities
67 871
66 341
208
222
Deferred expenditure
222
208
65 931
67 394
Property, plant and equipment
67 394
65 931
202
71
Future expenditure allowance
71
202
—
184
Cross-currency swaps
184
—
44 700
44 334
Net deferred tax liability
44 314
44 680
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, partically offset by the deferred tax impact on the loss for the year.
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
27.Contract assets and contract liabilities
Contract assets
20
Contracts in progress at the statement of financial position date
20
37
Engineering
37
614
702
Ports
702
614
651
722
722
651
—
—
Less allowance for expected credit losses
—
—
651
722
722
651
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.
1 259
1 825
Contract liabilities
1 825
1 259
Contract liabilities primarily relate to: (i) advance consideration received
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
2 789
3 766
Trade payables
3 766
2 789
17 153
20 616
Accruals
20 616
17 156
10 680
12 302
Accrued expenditure
12 302
10 683
174
238
Deposits received
238
174
1 981
2 795
Accrued interest
2 795
1 981
1 235
1 425
Personnel costs
1 425
1 235
80
67
Other post-retirement and medical benefits (refer note 23)
67
80
2 419
2 446
Leave pay (refer note 23)
2 446
2 419
27
80
Incentive bonus (refer note 23)
80
27
15
7
SARS – withholding tax
7
15
542
1 256
SARS – value-added tax
1 256
542
19 942
24 382
24 382
19 945
8889
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
29.Short-term borrowings
51 515
36 537
Total short-term borrowings at the beginning of the year
36 537
51 515
9 964
18 543
Recognised in the reporting period
18 543
9 964
(20 062)
(52 997)
Repayments in the reporting period
(52 997)
(20 062)
(101)
349
Foreign exchange movement
349
(101)
6
278
Amortisation of discount
278
6
(4 785)
48 628
Current portion of long-term interest-bearing borrowings (refer note 24)*
48 628
(4 785)
36 537
51 338
51 338
36 537
Short-term borrowings comprise the Group’s short-term position on bonds,
loans and other financial instruments, net of related repayments.
Short-term borrowings include lease liabilities of R581 million
(2022: R503 million).
Short-term borrowings bear interest at rates between 0% and 10,8%,
is repayable over periods between April 2023 and March 2024 and
are not guaranteed.
* Includes the impact of the cash interest cover loan covenant breach as at
the 31 March 2023, which resulted in affected loans of R32,7 billion in
long-term borrowings being reclassified to short-term borrowings in the
current reporting period. Transnet secured waivers from all the lenders
affected by the covenant breach, with all matters appropriately closed.
30.1
44
546
Contracted for in US Dollars
546
44
29
—
Contracted for in Euros
—
29
2 525
7 710
Contracted for in SA Rands
7 710
2 525
2 598
8 256
Total capital commitments contracted for
8 256
2 598
Property, plant and equipment
2 597
8 256
8 256
2 597
1
—
Intangible assets
—
1
Total capital commitments contracted for are expected to be incurred
3 840
as follows:
3 840
1 935
1 935
Within one year2
663
4 416
After one year, but not more than five years
4 416
663
2 598
8 256
Total capital commitments contracted for
8 256
2 598
1
Capital commitments contracted for are commitments under binding
contracts with third parties for the acquisition of property, plant and
equipment and intangible assets.
2
Included in the capital commitments for property, plant and equipment is
a contract for the purchase of various back-up power equipment, including
installation services. Transnet paid the contractual amount of R549,6 million
on 19 May 2023. The delivery and installation of the equipment is expected
in the 2024 financial year.
30.2
Lease commitments
The Group as lessee
796
Maturity analysis of lease liabilities
796
673
Less than one year
673
1 804
2 086
One to five years
2 086
1 804
45
40
More than five years
40
45
2 522
2 922
Total undiscounted lease liabilities
2 922
2 522
(444)
(600)
Less: Amount representing finance charges
(600)
(444)
2 078
2 322
Lease liabilities
2 322
2 078
503
581
Short-term lease liabilities
581
503
1 575
1 741
Long-term lease liabilities
1 741
1 575
Total cash payments made by the Group for leases during the financial year amounted to R608 million (2022: R599 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 2023, 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.
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
30.2 Lease commitments continued
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:
2 078
Property
2 078
1 703
Less than one year
1 703
1 737
2 028
More than one year but less than two years
2 028
1 737
1 164
1 674
More than two years but less than three years
1 674
1 164
1 004
1 322
More than three years but less than four years
1 322
1 004
798
1 188
More than four years but less than five years
1 188
798
4 782
6 170
More than five years
6 170
4 782
11 188
14 460
14 460
11 188
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:
6 805
Third-party claims
6 805
Various contingent assets2 where the inflow of economic benefits
1 140
is probable, but not virtually certain:
1 140
Insurance claims
1 706
Legal claims against third-parties
1 706
2 846
2 846
•
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.
•
9091
Notes to the annual financial statements
for the year ended 31 March 2023
•
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 a defined contribution fund and all employees of the Group are eligible members of the fund. There were 49 836 members at
31 March 2023 (2022: 50 951). 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 current year constitute member contributions of R1 370 million (2022: R1 413 million) and employer
contributions of R2 192 million (2022: R2 223 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 3 871 members and pensioners at 31 March 2023 (2022: 3 997). The fund gives members the option to transfer to the Transnet
Retirement Fund twice a year. No members opted to transfer to the Transnet Retirement Fund in the current year (2022: nil). The effect of the
transfers, as applicable, are included under benefits paid in the reconciliations below.
The duration of the defined benefit obligation is estimated to be 7 years based on the current membership profile.
Annual financial statements
Notes to the annual financial statements
Company and Group
2023
2022
R million
R million
32.1.2 Transport Pension Fund: Transnet Sub-fund continued
An actuarial valuation was performed at 31 March 2023 to determine the present value of the obligation
based on the projected unit credit method.
11,00%
Discount rate
10,13%
Inflation rate
6,44%
6,78%
Salary increase rate
7,44%
7,78%
Pension increase allowance
4,51%
4,75%
The results of the actuarial valuation are as follows:
Benefit liability
(3 018)
Present value of obligation
(2 922)
Fair value of plan assets
4 072
4 303
Surplus
1 054
1 381
Unrecognised asset
(1 054)
(1 381)
Net asset/(liability) recognised in the statement of financial position
—
—
The liability recognised for this fund relating to the Company amounts to nil (2022: nil).
The surplus was not recognised as the rules of the fund do not provide for the surpluses to be distributed.
Net expense recognised in profit or loss
(9)
Service cost
(11)
Net interest income
144
125
135
114
Less: Interest on asset limit
(144)
(125)
(9)
(11)
Actual return on plan assets
205
465
Total measurements recognised in other comprehensive income for the year
7
8
– net actuarial (loss)/gain
(464)
78
– interest on asset limit
144
125
– asset not recognised
327
(195)
Movements in the net asset/(liability) recognised in the statement of financial position
1 381
Opening net asset
1 186
Profit or loss as above
(9)
(11)
Remeasurements – actuarial (loss)/gain
(464)
78
– interest on asset limit
144
125
Contributions paid by employer
2
3
Closing net asset
1 054
1 381
Asset not recognised
(1 054)
(1 381)
Net asset/(liability) recognised in the statement of financial position
—
—
9293
Notes to the annual financial statements
for the year ended 31 March 2023
Company and Group
2023
2022
R million
R million
32.1.2 Transport Pension Fund: Transnet Sub-fund continued
Reconciliation of movement in benefit liability
(2 922)
Opening benefit liability
(2 998)
Service cost
(9)
(11)
Contributions by members
(1)
(2)
Interest cost
(288)
(299)
Actuarial (loss)/gain
(237)
36
– change in economic assumptions
235
(10)
– experience adjustments
(472)
46
Benefits paid
439
315
Bonus award paid to pensioners
—
37
(3 018)
(2 922)
Transfer to the retirement fund
—
—
Closing benefit liability
(3 018)
(2 922)
Reconciliation of movement in fair value of plan assets
4 303
Opening fair value of plan assets
4 184
Interest income
432
424
Actuarial (loss)/gain
(227)
42
Contributions by employer and members
3
5
Benefits paid
(439)
(352)
4 072
4 303
Transfer to the retirement fund
—
—
Closing fair value of plan assets
4 072
4 303
The estimated contributions (based on current year contributions) by both employer and members for the
year beginning 1 April 2023 amount to R3 million (2022: R5 million).
Sensitivity analysis
Closing benefit liability based on (±)1% change in the discount rate:
(3 223)
10,00% (2022: 9,13%)
(3 114)
12,00% (2022: 11,13%)
(2 834)
(2 750)
Closing benefit liability based on (±)1% change in the inflation rate:
(2 876)
5,44% (2022: 5,78%)
(2 806)
7,44% (2022: 7,78%)
(3 172)
(3 046)
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.
The major categories of plan assets as a % of total plan assets are:
Listed
Domestic equities
6,8%
9,6%
International equities
8,6%
10,3%
Domestic bonds
44,4%
70,9%
Real estate (local)
1,9%
2,2%
61,7%
93,0%
Non-listed
0,2%
Domestic private equity
0,5%
Derivatives (local)
22,1%
3,4%
Cash and cash equivalents
16,0%
3,1%
38,3%
7,0%
Total
100,0%
100,0%
Annual financial statements
Notes to the annual financial statements
Company and Group
2023
2022
R million
R million
32.1.3 Transnet Second Defined Benefit Fund
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 8 314 members at 31 March 2023 (2022: 9 399). This excludes widows and children of
pensioners. The all-inclusive membership is 34 754 at 31 March 2023 (2022: 37 506). The duration of the
defined benefit obligation is estimated to be 5,5 years based on the current membership profile.
An actuarial valuation was performed at 31 March 2023 to determine the present value of the obligation
based on the projected unit credit method.
The principal assumptions applied in determining the defined benefit liability are as follows:
10,76%
Discount rate
9,94%
Inflation rate
6,52%
6,85%
Pension increase allowance
4,56%
4,80%
The results of the actuarial valuation are as follows:
Benefit liability
(8 872)
Present value of obligation
(9 835)
Fair value of plan assets
12 743
13 848
Surplus
3 871
4 013
Unrecognised asset
(3 871)
(4 013)
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.
Net expense recognised in profit or loss
—
Service cost
—
Net interest income
399
333
399
333
Less: Interest on asset limit
(399)
(333)
—
—
Actual return on plan assets
702
1 383
Total measurements recognised in other comprehensive income for the year
—
—
– net actuarial (loss)/gain
(541)
305
– interest on asset limit
399
333
– net asset not recognised
142
(638)
Movements in the net asset/(liability) recognised in the statement of financial position
4 013
Opening net asset
3 375
Profit or (loss) as above
—
—
Remeasurements – actuarial (loss)/gain
(541)
305
– interest on asset limit
399
333
Closing net asset
3 871
4 013
Asset not recognised
(3 871)
(4 013)
Net asset/(liability) recognised in the statement of financial position
—
—
9495
Notes to the annual financial statements
for the year ended 31 March 2023
Company and Group
2023
2022
R million
R million
32.1.3 Transnet Second Defined Benefit Fund continued
Reconciliation of movement in benefit liability
(9 835)
Opening benefit liability
(10 960)
Interest cost
(906)
(988)
Actuarial gain
62
243
– change in economic assumptions
517
106
– experience adjustments
(455)
137
Benefits paid
1 807
1 870
Closing benefit liability
(8 872)
(9 835)
Reconciliation of movement in fair value of plan assets
13 848
Opening fair value of plan assets
14 335
Interest income
1 305
1 321
Actuarial (loss)/gain
(603)
62
Benefits paid
(1 807)
(1 870)
Closing fair value of plan assets
12 743
13 848
The estimated contributions (based on current year contributions) by both employer and members for the
year beginning 1 April 2023 amount to nil (2022: nil).
Sensitivity analysis
Closing benefit liability based on (±)1% change in the discount rate:
(9 351)
9,76% (2022: 8,94%)
(10 406)
11,76% (2022: 10,94%)
(8 438)
(9 324)
Closing benefit liability based on (±)1% change in the inflation rate:
(8 544)
5,52% (2022: 5,85%)
(9 508)
7,52% (2022: 7,85%)
(9 227)
(10 185)
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 plan assets.
The major categories of plan assets as a % of total plan assets are:
Listed
17,6%
Domestic equities
9,9%
International equities
9,7%
6,3%
Domestic bonds
67,9%
59,6%
Alternative assets
0,3%
0,0%
95,5%
75,8%
Non-listed
0,0%
Domestic private equity
1,9%
Domestic bonds
2,0%
0,0%
Derivatives (local)
(3,6)%
3,7%
Cash and cash equivalents
6,1%
18,6%
4,5%
24,2%
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).
Annual financial statements
Notes to the annual financial statements
A
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 Transnet
Second Defined Benefit Pension Fund and recovered from Transnet. There are no plan assets to fund the obligation.
There were 296 members at 31 March 2023 (2022: 307). The duration of the defined benefit obligation is estimated to be 4,5 years based on
the current membership profile.
An actuarial valuation was performed at 31 March 2023 to determine the present value of the obligation based on the projected unit credit
method.
Company and Group
2023
2022
R million
R million
The principal assumptions applied in determining the defined benefit liability are as follows:
10,48%
Discount rate
9,78%
Pension increase allowance
2,00%
2,00%
The results of the actuarial valuation are as follows:
Benefit liability
50
Present value of obligations
53
Liability recognised in the statement of financial position
50
53
Net expense recognised in profit or loss
(5)
Interest cost
(4)
(5)
(4)
Actuarial loss recognised in other comprehensive income for the year
(3)
(3)
Reconciliation of movement in benefit liability
(53)
Opening benefit liability
(54)
Expense as above
(5)
(4)
Actuarial loss
(3)
(3)
– change in economic assumptions
1
4
– experience adjustments
(4)
(7)
Benefits paid
11
8
Benefit liability at year-end
(50)
(53)
The estimated contributions (based on current year contributions) for the year beginning 1 April 2023
amount to R11 million (2022: R8 million).
Sensitivity analysis
Closing benefit liability based on (±)1% change in the discount rate:
(53)
9,48% (2022: 8,78%)
(56)
11,48% (2022: 10,78%)
(48)
(51)
9697
Notes to the annual financial statements
for the year ended 31 March 2023
Company and Group
2023
2022
R million
R million
32.1.5 Workmen’s Compensation Act pensioners fund
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 Transnet Second Defined Benefit Pension Fund and recovered from Transnet. There are
no plan assets to fund the obligation.
There were 721 members at 31 March 2023 (2022: 756). The duration of the defined benefit obligation is
estimated to be 7,6 years based on the current membership profile.
An actuarial valuation was performed at 31 March 2023 to determine the present value of the obligation
based on the projected unit credit method.
The principal assumptions applied in determining the defined benefit liability are as follows:
11,27%
Discount rate
10,50%
Pension increase
6,70%
6,67%
Inflation rate
6,70%
6,67%
The results of the actuarial valuation are as follows:
Benefit liability
(327)
Present value of obligations
(355)
Liability recognised in the statement of financial position
(327)
(355)
Net expense recognised in profit or loss
(36)
Interest cost
(39)
(36)
(39)
Actuarial gain recognised in other comprehensive income for the year
16
15
Reconciliation of movement in benefit liability
(355)
Opening benefit liability
(368)
Interest cost
(36)
(39)
Actuarial gains
16
15
– change in economic assumptions
17
(7)
– experience adjustments
(1)
22
Benefits paid
48
37
Benefit liability at year-end
(327)
(355)
The estimated contributions (based on current year contributions) for the year beginning 1 April 2023
amount to R48 million (2022: R37 million).
Sensitivity analysis
Closing benefit liability based on (±)1% change in the discount rate:
(351)
10,27% (2022: 9,50%)
(383)
12,27% (2022: 11,50%)
(306)
(331)
Closing benefit liability based on (±)1% change in the inflation rate:
(305)
5,70% (2022: 5,67%)
(330)
7,70% (2022: 7,67%)
(352)
(383)
32.1.6
HIV/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.
Annual financial statements
Notes to the annual financial statements
•
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, membership in
which is voluntary. Transnet subsidises the medical contribution costs at a flat contribution of R800 per principal member per month. The fund
is governed by the Medical Schemes 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 reponsible 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. The fund is governed by the Medical Schemes Act.
Actuarial valuations are obtained annually for both post-retirement medical benefit obligations based on the projected unit credit method.
There are no plan assets held to fund the obligations.
In aggregate, there were 1 971 members at 31 March 2023 (2022: 1 921). The duration of the post-retirement defined medical benefit
obligations is estimated to be 7,5 years based on the current membership profile.
Company and Group
2023
2022
R million
R million
32.2.1 SATS pensioners
The principal assumptions applied in determining the defined benefit liability are as follows:
Discount rate
10,48%
10,03%
Benefit liability
(182)
Present value of obligations
(193)
Liability recognised in the statement of financial position
(182)
(193)
Net expense recognised in profit or loss
(17)
Interest cost
(21)
(17)
(21)
Actuarial (loss)/gain recognised in other comprehensive income for the year
(16)
8
Reconciliation of movement in benefit liability
(193)
Opening benefit liability
(235)
Interest cost
(17)
(21)
Benefits paid
44
55
Actuarial (loss)/gain
(16)
8
– change in economic assumptions
3
1
– experience adjustments
(19)
7
Closing benefit liability
(182)
(193)
The estimated contributions (based on current year benefits paid) for the year beginning 1 April 2023
amount to R44 million (2022: R55 million).
The medical inflation has no impact on the aggregate current service cost, the interest cost and the
defined benefit liability. The sensitivity of the liability to a change in the discount rate is as follows:
Sensitivity analysis
Closing benefit liability based on (±)1% change in the discount rate:
(189)
9,48% (2022: 9,03%)
(200)
11,48% (2022: 11,03%)
(175)
(186)
9899
Notes to the annual financial statements
for the year ended 31 March 2023
Company and Group
2023
2022
R million
R million
32.2.2
Transnet employees
10,48%
Discount rate
10,03%
Benefit liability
(170)
Present value of obligations
(175)
Liability recognised in the statement of financial position
(170)
(175)
Net expense recognised in profit or loss
(4)
Service cost
(5)
Interest cost
(17)
(21)
(21)
(26)
Actuarial gain recognised in other comprehensive income for the year
9
55
Reconciliation of movement in benefit liability
(175)
Opening benefit liability
(221)
Expense as above
(21)
(26)
Benefits paid
17
17
Actuarial gain
9
55
– change in economic assumptions
8
3
– experience adjustments
1
52
Closing benefit liability
(170)
(175)
The estimated contributions (based on current year benefits paid) for the year beginning 1 April 2023
amount to R17 million (2022: R17 million).
The medical inflation has no impact on the aggregate current service cost, the interest cost and the defined
benefit liability. The sensitivity of the liability to a change in the discount rate is as follows:
Sensitivity analysis
Closing benefit liability based on (±)1% change in the discount rate:
(189)
9,48% (2022: 9,03%)
(193)
11,48% (2022: 11,03%)
(156)
(160)
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 benefits are 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.
Annual financial statements
Notes to the annual financial statements
•
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:
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
3 193
Services rendered
3 193
639
Major public enterprises
639
1 097
1 933
Other public enterprises
1 933
1 097
817
782
National Government business enterprises
782
817
2
51
Associates
51
2
22
—
Subsidiaries
—
22
2 577
5 959
5 959
2 577
4 182
Services received
4 182
3 618
Major public enterprises
3 618
1 001
1 529
Other public enterprises
1 529
1 001
3 953
4 459
National Government business enterprises
4 459
3 953
8 572
10 170
10 170
8 572
(8 958)
Amount due (to)/from
(8 958)
(6 402)
Major public enterprises
(6 402)
(415)
(222)
Other public enterprises
(222)
(415)
(1 466)
(3 370)
National Government business enterprises
(3 370)
(1 466)
—
1
Associates
1
—
381
—
Subsidiaries
—
—
(7 902)
(12 549)
(12 549)
(8 283)
During the year the Group reversed R838 million (2022: R226 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 R403 million (2022: R1 241 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.
100101
Notes to the annual financial statements
for the year ended 31 March 2023
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
(7 305)
34.1 Cash generated from operations
(7 325)
5 490
(Loss)/profit before tax
5 489
10 354
11 937
Finance costs (refer note 34.3)
11 937
10 354
(112)
(186)
Finance income (refer note 7)
(186)
(126)
(9)
(34)
Dividend income (refer note 4.3)
—
—
9 864
17 370
Elimination of non-cash items
17 390
9 884
14 847
16 098
– Depreciation, amortisation and derecognition (refer note 3)
16 098
14 847
101
88
– Increase in provision for employee benefits
88
101
(885)
– (Reversal of impairment)/impairment of trade and other receivables and
(885)
415
loans and advances (refer note 4.2.1)
415
2 124
4 413
– Impairment of property, plant and equipment (refer note 4.2.2)
4 413
2 124
4
– Impairment/(reversal of impairment) of intangible assets
4
(5)
(refer note 4.2.2)
(5)
—
75
– Impairment of investment property (refer note 4.2.2)
75
—
667
(219)
– Movement in provisions and other non-current liabilities
(219)
667
—
—
– (Income)/loss from associates and joint ventures (refer note 13)
(14)
6
1 431
(4 268)
– Fair value adjustments on derivatives
(4 268)
1 431
(25)
92
– Fair value adjustments on other financial assets (refer note 5)
92
(25)
(226)
2 600
– Unrealised foreign exchange movements
2 600
(226)
137
82
– Loss on disposal of property, plant and equipment (refer note 2)
82
137
—
4
– Loss on disposal of intangible assets (refer note 2)
4
—
57
52
– Discount on bonds amortised (refer note 6)
52
57
106
363
– Provision for inventory obsolescence
363
106
(1)
– Release of firm commitments and foreign exchange adjustment
(1)
1
(refer note 9)
1
19
37
– Decommissioning liability (refer note 9)
37
19
(9 814)
(1 054)
– Fair value adjustment of investment property (refer note 5)
(1 054)
(9 814)
(92)
(283)
– Movement in lease smooting and long-term receivables
(283)
(92)
35
91
– Fees relating to borrowings
91
35
104
139
– Amortisation of loss on derivatives (refer note 14)
139
104
(18)
(58)
– Other non-cash items*
(24)
(4)
25 587
21 782
21 816
25 601
(519)
34.2 Changes in working capital
(519)
(172)
Increase in inventories
(172)
616
(125)
(Increase)/decrease in trade, other receivables and contract assets
(135)
602
3 026
4 192
Increase in trade payables, accruals and contract liabilities
4 189
3 027
3 470
3 548
3 535
3 457
34.3
Finance costs
10 684
12 187
Finance costs
12 187
10 684
2
42
Net foreign exchange gain on translation
42
2
(275)
(240)
Unwinding of discounts on provisions
(240)
(275)
(57)
(52)
Discounts on bonds amortised
(52)
(57)
10 354
11 937
11 937
10 354
105
(814)
(Increase)/decrease in accrued interest
(814)
105
(479)
(160)
Deferred interest
(160)
(479)
9 980
10 963
10 963
9 980
* Other non-cash items relate to minor various non-cash transactions.
Annual financial statements
Notes to the annual financial statements
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
34.4
Tax paid
—
—
Balance at the beginning of the year
2
(1)
—
—
Tax as per income statements
—
(10)
—
—
Balance at the end of the year
(2)
(2)
—
—
—
(13)
5 055
(5 656)
(Loss)/profit for the year attributable to the equity holder
(5 676)
5 048
137
82
Loss on disposal of property, plant and equipment (refer note 2)
82
137
–
4
Loss on disposal of intangible assets (refer note 2)
4
—
(9 814)
(1 054)
Fair value adjustments on investment property (refer note 5)
(1 054)
(9 814)
2 119
4 492
Impairment of non-financial assets (refer note 4.2.2)
4 492
2 119
(2 503)
(2 132)
Headline earnings before tax effects
(2 152)
(2 510)
(22)
Tax effects
(22)
(37)
Loss on disposal of property, plant and equipment
(37)
—
(1)
Loss on disposal of intangible assets
(1)
—
2 120
228
Fair value adjustments on investment property
228
2 120
(572)
(1 206)
Impairment of non-financial assets
(1 206)
(572)
(992)
(3 133)
Headline earnings
(3 153)
(999)
102103
Notes to the annual financial statements
for the year ended 31 March 2023
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:
1
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
2
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
1
Protect the company against undesirable market price movements, relating to financial market risks above, while allowing upside participation, as far
as possible;
2
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;
3
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;
4
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;
5
For a given level of financial risk exposure and the mitigation thereof, Transnet will seek to maximise the cost-benefit ratio; and
6
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 and favourable positive fair market values of derivative financial instruments – 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:
2
Very low risk.
3
Low risk.
4
Medium risk.
5
High risk.
6
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.
Annual financial statements
Notes to the annual financial statements
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:
1
Transnet Freight Rail;
2
Transnet Engineering;
3
Transnet National Ports Authority;
4
Transnet Port Terminals;
5
Transnet Pipelines; and
6
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 and guarantees issued by counterparties to mitigate financial risks in supply
agreements. The Group’s main objectives of its counterparty risk policies are:
1
To mitigate counterparty risk exposures;
2
To diversify counterparty risk exposures;
3
To set limits for the different types of counterparty risk exposures; and
4
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:
1
Selection of counterparties through credit risk analysis;
2
Establishment of investment limits per institution;
3
Establishment of investment limits per investment instrument;
4
Monitoring of investments against limits;
5
Reassessment of investment policies on a regular basis;
6
Reassessment of counterparty credit risk based on credit ratings; and
7
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.
104105
Notes to the annual financial statements
for the year ended 31 March 2023
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 R36,9 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. The TNUS28 was issued from the GMTN programme during the 2023 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.
Annual financial statements
Notes to the annual financial statements
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 2023 for the Company and the Group:
2023
2022
Coupon
Carrying
Nominal
Carrying
Nominal
Redemption
rate
value
value
value
value
Bond
date
%
R million
R million
R million
R million
Domestic Rand bonds
TN23
6 Nov 23
10,80
6 960
6 929
7 006
6 929
TNF25U
14 Feb 25
9,75
2 500
2 500
2 500
2 500
TNF25
14 Feb 25
9,90
550
550
550
550
TN25
19 Aug 25
9,50
9 934
9 929
9 937
9 929
TNF26U
13 Aug 26
10,15
1 930
1 930
1 930
1 930
TNF27
7 Feb 27
10,30
316
316
316
316
TN27
14 Nov 27
8,90
8 226
8 565
8 172
8 565
TN29
7 Feb 29
10,26
200
200
200
200
TN30
9 Oct 30
10,50
4 583
4 622
4 580
4 622
TNI33
28 Feb 33
5,23
285
308
285
286
TN34
7 Feb 34
11,35
108
108
108
108
TN40
9 Oct 40
10,75
4 874
5 070
4 871
5 070
Total domestic Rand bonds
40 466
41 027
40 455
41 005
Foreign Rand bonds
Euro 20281
18 Apr 28
13,50
1 975
2 000
1 972
2 000
Euro 20291
30 Mar 29
10,00
1 212
1 500
1 183
1 500
Total foreign Rand bonds
3 187
3 500
3 155
3 500
USD bonds
TNUS22
26 Jul 22
4,00
—
—
14 628
14 636
TNUS28
6 Feb 28
8,25
17 734
17 734
—
—
Total foreign currency bonds
17 734
17 734
14 628
14 636
Total bonds in issue at year-end
61 387
62 261
58 238
59 141
*
These bonds are guaranteed by the Government of the Republic of South Africa, and the Company paid R1,2 million in guarantee fees (2022: R1,2
million). The amounts in the above table are all in respect of bonds held at amortised cost.
106107
Notes to the annual financial statements
for the year ended 31 March 2023
36.Financial risk management continued
Concentration of liquidity risk
The sources of funding are tabled below. Altogether 48% of the borrowings are widely held (2022: 46%):
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
4 481
1 754
ABSA Bank Ltd
1 754
4 481
2 722
2 528
African Development Bank
2 528
2 722
2 500
2 214
Bank of China
2 214
2 500
11 728
12 488
China Development Bank
12 488
11 728
—
11 863
Deutsche Bank
11 863
—
6 000
8 500
Development Bank of South Africa
8 500
6 000
3 146
2 622
Export Development Canada
2 622
3 146
1 160
1 031
FutureGrowth Asset Management (Pty) Ltd
1 031
1 160
432
290
French Development Bank
290
432
3 305
2 850
GFB 2015 (RF) Proprietary Limited (US Exim)
2 850
3 305
1 200
400
Industrial and Commercial Bank of China
400
1 200
1 000
520
Industrial Development Corporation
520
1 000
1 049
874
Investec Bank Ltd
874
1 049
6 650
3 535
JP Morgan Chase Bank
3 535
6 650
2 103
1 840
KfW Development Bank
1 840
2 103
1 600
1 600
KFWIPEX_Bank GmbH
1 600
1 600
1 021
684
Libfin
684
1 021
5 694
2 285
Nedbank Ltd
2 285
5 694
1 135
967
Old Mutual Life Assurance Company (SA) Ltd
967
1 135
821
699
Old Mutual Specialised Finance (Pty) Ltd
699
821
4 528
1 000
RMB – Division of FirstRand Bank Ltd
1 000
4 528
95
85
Sanlam Investment Management (Pty) Ltd
85
95
2 500
2 300
Standard Bank Corporate Investment Bank
2 300
2 500
2 029
2 029
The New Development Bank
2 029
2 029
62 787
Various holders of Transnet bonds and commercial paper,
62 787
59 861
59 861
widely held, and traded2
2 078
2 322
Other3
2 322
2 078
128 838
130 067
Total borrowings1
130 067
128 838
**
Borrowings include loans of R15 391 million (2022: R15 216 million) in respect of the acquisition of locomotives, which are secured by a pledge of the
associated locomotives with a carrying value of R23 678 million (2022: of R28 727 million) – refer note 9.
Further, borrowings include loans amounting to R22 887 million (2022: R22 786 million) in respect of locomotives acquired under the 1 064 locomotive supply
agreements, of which R15 337 million (2022: R15 033 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.
WABTEC South Africa
CRRC E-loco
CRRC SA
BT*
Technologies (Pty) Ltd
Locomotives contracted
359
232
240
233
Delivered to date
260
22
91
233
Outstanding deliveries
99
210
149
—
*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 336 million (2022: R5 249
million) would become payable, and would be subject to negotiations between Transnet and the banks.
•
Includes bonds held at amortised cost of R61 387 million and commercial paper of R1 400 million. (2022: includes bonds held at amortised cost of
R58 238 million, commercial paper of R1 623 million and repo liabilities of R0,05 million).
•
Includes lease liabilities of R2 322 million (2022: R2 078 million).
Annual financial statements
Notes to the annual financial statements
36.Financial risk management continued
Funding plan
Over the next five years Transnet intends to raise R88,4 billion (R93,4 billion after including a liquidity buffer) from the market.
Budget
Projections
Five-year
2023/24
2024/25
2025/26
2026/27
2027/28
plan
R million
R million
R million
R million
R million
R million
Net cash flows from operations
24 457
23 366
28 024
35 369
40 827
152 043
Capital investment
(19 197)
(24 041)
(29 024)
(27 778)
(22 668)
(122 708)
Loan redemptions
(15 327)
(16 638)
(24 645)
(19 522)
(41 554)
(117 686)
Funding requirement
(10 067)
(17 313)
(25 645)
(11 931)
(23 395)
(88 351)
New debt capital redemptions
(5 000)
—
—
—
—
(5 000)
Funding mandate
(15 067)
(17 313)
(25 645)
(11 931)
(23 395)
(93 351)
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 2023 for the Company and the Group:
Carrying
Contractual
0 to 12
1 to 2
2 to 3
3 to 4
4 to 5
More
value
cash flows
than
2023
2023
months
years
years
years
years
5 years
R million
R million
R million
R million
R million
R million
R million
R million
Non-derivative financial liabilities
(61 387)
(94 597)
(12 750)
(8 411)
(14 360)
(6 108)
(30 023)
(22 945)
Bonds (Company and Group)
Secured bank loans (Company
(15 391)
(282 457)
(48 031)
(43 493)
(40 471)
(38 452)
(36 630)
(75 380)
and Group)
Unsecured bank loans
(46 032)
(53 373)
(8 957)
(7 048)
(6 484)
(6 323)
(5 216)
(19 345)
(Company and Group)
Commercial paper (Company and Group)
(1 400)
(1 520)
(1 520)
—
—
—
—
—
Other borrowings
(5 857)
(7 492)
(1 473)
(2 388)
(840)
(761)
(704)
(1 326)
(Company and Group)
Total borrowings (Company and Group)
(130 067)
(439 439)
(72 731)
(61 340)
(62 155)
(51 644)
(72 573)
(118 996)
Trade payables, accruals and contract
(24 877)
(24 877)
(24 877)
—
—
—
—
—
liabilities (Company and Group)1
Derivative financial liabilities
(Company and Group)
(567)
(634)
(202)
(195)
(156)
(97)
(33)
49
Interest rate swaps
Forward exchange contracts
(16)
(16)
(16)
—
—
—
—
—
used for hedging
Outflow
(400)
(403)
(403)
—
—
—
—
—
Inflow
384
387
387
—
—
—
—
—
Other forward exchange contracts
—
—
—
—
—
—
—
—
Outflow
(2)
(2)
(2)
—
—
—
—
—
Inflow
2
2
2
—
—
—
—
—
Total derivative financial liabilities
(583)
(650)
(218)
(195)
(156)
(97)
(33)
49
1
Trade payables and accruals, excluding post-retirement employee benefits and tax related accruals.
108109
Notes to the annual financial statements
for the year ended 31 March 2023
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 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
Non-derivative financial liabilities
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
(20 564)
(20 564)
(20 564)
—
—
—
—
—
liabilities (Company)1
Trade payables, accruals and contract
(20 567)
(20 567)
(20 567)
—
—
—
—
—
liabilities (Group)1
Derivative financial liabilities
(Company and Group)
Interest rate swaps
(1456)
(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.
Annual financial statements
Notes to the annual financial statements
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:
2023
2022
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
Company
Trade receivables and contract assets
8 306
(2 757)
32%
5 549
– Low risk
6 994
(2 053)
29
4 941
– Medium risk
1 369
(79)
6%
1 290
2 095
(1 035)
49
1 060
– High risk
1 496
(1 025)
69%
471
2 188
(1 446)
66
742
11 171
(3 861)
33%
7 310
11 277
(4 534)
40
6 743
Other amounts receivable1
2 155
(555)
26%
1 600
1 626
(546)
34
1 080
Investments – current
57
—
—
57
61
—
—
61
Investment and price risk
12 697
—
—
12 697
4 406
—
—
4 406
Group
Trade receivables and contract assets
8 306
(2 757)
32%
5 549
– Low risk
6 994
(2 053)
29
4 941
– Medium risk
1 369
(79)
6%
1 290
2 095
(1 035)
49
1 060
– High risk
1 496
(1 025)
69%
471
2 188
(1 446)
66
742
11 171
(3 861)
33%
7 310
11 277
(4 534)
40
6 743
Other amounts receivable1
2 179
(555)
25%
1 624
1 640
(546)
33
1 094
Investments – current
57
—
—
57
61
—
—
61
Investment and price risk
12 697
—
—
12 697
4 406
—
—
4 406
1 Reconciliation to note 18
Prepayments and other amounts receivable
Company
Group
Other amounts receivable
R1 600 million (2022: R1 080 million)
R1 624 million (2022: R1 094 million)
Prepayments
R628 million (2022: R630 million)
R628 million (2022: R630 million)
R2 228 million (2022: R1 710 million)
R2 252 million (2022: R1 724 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.
110111
Notes to the annual financial statements
for the year ended 31 March 2023
36.Financial risk management continued
Guarantees and deposits to the value of R2,7 billion were held as collateral in respect of trade and other receivables (2022: R2,1 billion).
Trade receivables to the value of R195,4 million (2022: R23,1 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 31% of the trade receivables at 31 March 2023 (2022: 34%).
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:
112
Annual financial statements
Notes to the annual financial statements
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 2023 are reflected below (expressed in notional amounts):
2023
2022
USD
JPY
EUR
USD
JPY
EUR
US$/m
¥/m
€/m
US$/m
¥/m
€/m
Foreign currency bonds
(1 000)
—
—
(1 000)
—
—
Secured bank loans
(1 397)
—
—
(811)
—
—
Brazil equity investment
2
—
—
2
—
—
Gross financial position exposure
(2 395)
—
—
(1 809)
—
—
Exposures for future expenditure
(21)
—
—
(41)
(3)
—
Gross foreign currency exposure
(2 416)
—
—
(1 850)
(3)
—
Forward exchange contracts
20
—
—
41
3
—
Cross-currency swaps
2 397
—
—
1 811
—
—
Net uncovered exposure
1
—
—
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:
2023
Impact
2022
Impact
Currency
Impact
of Rand
Currency
of Rand
Impact
exposure in
Fair value
strength-
of Rand
exposure in
strength-
of Rand
millions of
ening
weakening
millions of
Fair value
ening
weakening
Currency
currency
R million
R million
R million
currency
R million
R million
R million
AUD
0,1
(0,001)
0,001
(0,001)
—
—
—
—
EUR
1
(0,02)
0,03
(0,03)
1
(2,0)
1,4
(1,4)
GBP
0,01
(0,0003)
0,0003
(0,0003)
—
—
—
—
USD
(4)
0,01
(0,1)
0,1
0,4
(0,1)
0,2
(0,2)
Totals
(0,01)
(0,1)
0,1
(2,1)
1,6
(1,6)
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 2-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 R2 million (2022: R3 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.
113
Notes to the annual financial statements
for the year ended 31 March 2023
36.Financial risk management continued
Foreign exchange rates
The mid-rates of exchange against Rand used for conversion purposes were:
2023
2022
US Dollar
17.7339
14.6360
Japanese Yen
0.1336
0.1204
British Pound
21.8978
19.2294
Euro
19.2758
16.2196
Interest rate risk
The Company’s and Group’s exposure to fixed and floating interest rates on financial liabilities is as follows:
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
(94 795)
(76 502)
Fixed-rate liabilities
(76 502)
(94 795)
(34 043)
(53 565)
Floating-rate liabilities
(53 565)
(34 043)
(128 838)
(130 067)
Total1
(130 067)
(128 838)
*
These values include the repo liability of R0 million (2022: R0,05 million), which have a maturity term of one week.
The exposure to floating interest rates on foreign financial liabilities is R24 350 million (2022: R11 728 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 2023 financial year in respect of existing liabilities and
new funding requirements for Company and Group.
2023
2022
Shift
Shift
Shift
Shift
Shift
Shift
Shift
Shift
Shift
Shift
Impact
+100bp
-200bp
+250bp
-500bp
+500bp
+100bp
-200bp
+250bp
-500bp
+500bp
R million
R million
R million
R million
R million
R million
R million
R million
R million
R million
Finance cost impact
(486)
971
(1 214)
2 428
(2 429)
(increase)/decrease
(463)
928
(1 158)
2 318
(2 317)
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 R12 488 million at 31 March 2023 (2022: R11 728 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 before the transition takes
effect. 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 R48 million (2022: R41 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 2024 financial year at various levels of Brent crude and
USD/ZAR ($/R) exchange rates as at 31 March 2023 (excluding energy levies for Company and Group). Amounts are in R million.
31 March 2023
$/R9,07
$/R14,07
$/R17,73
$/R21,39
$/R26,39
BRT @ $48
1,374
1,033
783
533
192
BRT @ $58
1,246
835
533
232
(180)
BRT @ $80
973
411
—
(411)
(973)
BRT @ $101
701
(12)
(533)
(1,055)
(1,767)
BRT @ $111
573
(210)
(783)
(1,356)
(2,139)
Annual financial statements
Notes to the annual financial statements
36.Financial risk management continued
The table below shows the cash flow at risk scenarios against the approved fuel budget for the 2023 financial year at various levels of Brent crude and
USD/ZAR ($/R) exchange rates as at 31 March 2022 (excluding energy levies) for Company and Group. Amounts are in R million:
31 March 2022
$/R8,20
$/R13,20
$/R15,34
$/R17,48
$/R22,48
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)
Classification, fair values and analysis of financial instruments
Categories of financial instruments:
Company
Group
2022
2023
2023
2022
R million
R million
R million
R million
23 135
Financial assets at amortised cost
23 159
11 992
– Trade receivables and contract assets (including bank and cash)*
12 464
3 418
Fair value through profit or loss
3 418
7 281
– Derivatives held for risk management
7 281
220
128
– Other financial assets
128
220
48
Fair value through other comprehensive income
48
41
– Equity investment (Rumo)
41
Financial liabilities at amortised cost
154 944
– Liabilities measured at amortised cost (including trade payables,
154 944
149 402
accruals and contract liabilities)**
149 405
583
Fair value through profit or loss
583
1 507
– Derivatives held-for-hedging
1 507
1
Includes restricted cash held by the TPL Rehabilitation Trust in the prior year.
1
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:
Company
Group
2022
2023
2023
2022
Fair
Carrying
Fair
Carrying
Fair
Carrying
Fair
Carrying
value
value
value
value
value
value
value
value
R million
R million
R million
R million
R million
R million
R million
R million
134 085
126 760
328 806
127 745
Borrowings
328 806
127 745
134 085
126 760
1 848
2 078
1 970
2 322
Lease liabilities
1 970
2 322
1 848
2 078
114115
Notes to the annual financial statements
for the year ended 31 March 2023
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:
2
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
3
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.
4
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).
Level 1
Level 2
Level 3
Total
R million
R million
R million
R million
2023
Financial assets at FVTPL*
—
3 418
—
3 418
Derivative financial assets (Company and Group)
Other financial assets (Company and Group)***
—
—
128
128
Financial assets at FVTOCI**
48
—
—
48
Equity investment (Rumo) (Company and Group)
Financial liabilities at FVTPL*
—
583
—
583
Derivative financial liabilities (Company and Group)
2022
Financial assets at FVTPL*
Derivative financial assets (Company and Group)
—
7 281
—
7 281
Other financial assets (Company and Group)***
—
—
220
220
Financial assets at FVTOCI**
Equity investment (Rumo) (Company and Group)
41
—
—
41
Financial liabilities at FVTPL*
Derivative financial liabilities (Company and Group)
—
1 507
—
1 507
* FVTPL – Fair value through profit and loss.
** FVTOCI – Fair value through other comprehensive income.
2023
2022
*** Opening balance (R million)
220
195
Fair value adjustment (R million)
(92)
25
Closing balance (R million)
128
220
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:
Significant
Interrelationship between
Financial instruments
significant unobservable
Valuation technique
unobservable
inputs and fair value
measured at fair value
inputs
measurement
Cross-currency and interest
Discounted cash flow method using market yield curves to project
Not applicable
Not applicable
rate swaps and forward
and discount cash flows. The Monte Carlo simulation model is used,
exchange contracts used for
incorporating market inputs that were observable, probabilities of
hedging1
default, recovery rates and 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 credit
Not applicable
Not applicable
risk of counterparties.
2
Fair values include market observable credit valuation adjustments (CVAs) and debit value adjustments (DVAs).
3
Guardrisk insurance cell.
4
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:
Company
Group
Net
Net
gain/(loss)
gain/(loss)
R million
R million
2023
(13 285)
(13 285)
Liabilities measured at amortised cost1 (refer note 6)
Financial assets at amortised cost (refer note 7)
186
186
Financial assets and liabilities held at fair value through profit or loss2 (refer note 5)
621
621
Equity and debt investments held at fair value through other comprehensive income
7
7
2022
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
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 on Company and Group financial assets and financial liabilities held-for-trading is R713 million (2022: R288 million).
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:
Rating category
Moody’s
S&P
Foreign currency rating
Ba3/Stable outlook
BB-/Negative outlook
Local currency rating
Ba3/Stable outlook
BB-/Negative outlook
National scale rating (NSR)- long and short term
A2.za/P-1.za
za.AA-/za.A-1+
Standalone credit rating (BCA/SACP)
b2/Stable outlook
b+/ Negative outlook
On 6 February 2023 Moody’s revised the outlook on Transnet’s ratings to stable from negative. The Corporate Family Ratings (long-term local and foreign
currency) of Ba3, the National Scale Rating (NSR) senior unsecured MTN programme of A2.za, NSR short-term rating of P-1.za and the Baseline Credit
Assessment (BCA) of b2 were all affirmed at current levels.
This change in the ratings outlook was informed by the successful issuance of USD1 billion in the highly liquid international markets and access thereof
given the absence of Transnet as an issuer in over a decade.
On 29 November 2022 S&P affirmed Transnet’s issuer ratings at BB- and the outlook remains negative. The BB- issuer ratings on its senior
unsecured debt and the National Scale Rating (NSR) at zaAA/zaA-1+ were also affirmed. However, Transnet’s standalone rating was revised down
by one notch to b+ from bb-.
This rating action had impacted two loans with an outstanding capital balance of R6 billion. The relevant waivers for a covenant breach
were successfully secured.
On 5 July 2023 S&P lowered the long-term NSR to za.AA- and affirmed the short-term rating at za.A-1+, due to the publication of S&P’s revised criteria
for determining national and regional scale mapping specifications and assigning credit ratings mapped from global to national scale.
116117
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2023
37.Details of investments in subsidiaries and associates
Voting
Interest of holding
Interest of holding
Accumulated
Effective holding
power held
Shares at cost
company net profit/(loss)
company indebtedness
impairment and losses
Subsidiaries1
2023
2022
2023
2023
2022
2023
2022
2023
2022
2023
2022
%
%
%
R million
R million
R million
R million
R million
R million
R million
R million
Environmental responsibility
—
—
—
—*
—
—
Transnet Pipelines Rehabilitation Trust2
100
—
72*
—
—
International business activities
Transnet International Holdings SOC Ltd (TIH)3
100
100
100
—
—
—
—
—
—
—
—
•
Includes contributions from Transnet Pipelines of nil (2022: R64 million).
40.
Incorporated in the Republic of South Africa, unless stated otherwise.
41.
Disolved during the reporting year.
42.
Dormant.
Interest of holding
Accumulated impairment
Share of post-
Effective holding
Shares at cost
company indebtedness
and losses
acquisition reserves
Total
Equity-accounted investees1
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
Principal activity
%
%
R million
R million
R million
R million
R million
R million
R million
R million
R million
R million
Associates
30
—
1
—
4
5
Commercial Cold Storage (Ports) (Pty) Ltd
Storage and bondage
30
—
1
—
31
32
Comazar (Pty) Ltd2
Transport logistics
32
32
13
13
8
8
21
21
—
—
—
—
RainProp (Pty) Ltd
Property development
20
—
1
—
39
40
and management
20
—
1
—
35
36
Joint ventures
Gaborone Container Terminal3
Container terminal
36
36
6
6
—
—
—
—
22
19
28
25
Cytobix (Pty) Ltd (Godisa supplier
50
—
55
55
—
—
development fund)
Supplier development
50
—
55
55
—
—
19
19
65
65
76
76
65
85
73
93
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
104
65
990
Total assets
Total liabilities
91
4
413
Results of operations
61
14
258
Revenue
Net profit
8
(6)
34
118119
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2023
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
Retirement
benefit
Total
fund
UIF
Other
Total
Salary
contribution
contribution
payments
2023
2022
Member
R 000
R 000
R 000
R 000
R 000
R 000
PPJ Derby1
7 784
714
2
—
8 500
8 500
M Phillips
3 919
279
2
—
4 200
4 200
K Ngema2, 3
—
—
—
—
—
4 956
P Munyai
4 174
324
2
—
4 500
4 127
BL Kgomo6
—
—
—
—
—
1 314
V Nemukula
4 120
378
2
—
4 500
3 900
N Dlamini1
5 798
—
2
—
5 800
5 800
A Shaw
4 670
428
2
—
5 100
5 100
S Coetzee
5 398
—
2
—
5 400
5 400
B Kani
3 803
295
2
—
4 100
4 100
S Mzimela
6 098
—
2
—
6 100
6 100
R Mills
4 646
452
2
—
5 100
4 320
V Dube2
—
—
—
—
—
7 498
M Silinga
5 375
523
2
—
5 900
5 900
K Phahlamohlaka
4 267
331
2
—
4 600
4 600
X Ntshingila3
—
—
—
—
—
2 315
T Siyaya2, 3
—
—
—
—
—
3 020
IK Matsheka4
4 731
367
2
—
5 100
2 399
S Khan4
3 937
361
2
—
4 300
358
DJ Mdaki3, 4
4 646
452
2
—
5 100
2 221
HS Chetty5
4 066
432
2
—
4 500
—
A Pillay5
3 911
304
2
—
4 217
—
Total
81 343
5 640
34
—
87 017
86 128
•
Group executives who are members of the Board of directors.
•
Includes voluntary severance package benefit.
•
Acted as an Exco member in the prior financial year.
•
Appointed as an Exco member during the prior financial year.
•
Appointed as an Exco member during the financial year.
•
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:
Long-term
Long-termShort-termShort-term
incentive*
incentive*
incentive*
incentive*
2023
2022
2023
2022
Member
R 000
R 000
R 000
R 000
PPJ Derby1
—
—
—
—
M Phillips
—
—
—
—
K Ngema2, 3
—
—
—
—
P Munyai
—
—
—
—
BL Kgomo6
—
—
—
—
V Nemukula
—
—
—
—
N Dlamini1
—
—
—
—
A Shaw
—
—
—
—
S Coetzee
—
—
—
—
B Kani
—
—
—
—
S Mzimela
—
—
—
—
R Mills
—
—
—
—
V Dube2
—
—
—
—
M Silinga
—
—
—
—
K Phahlamohlaka
—
—
—
—
X Ntshingila3
—
—
—
—
T Siyaya2, 3
—
—
—
—
IK Matsheka4
—
—
—
—
S Khan4
—
—
—
—
DJ Mdaki3, 4
—
—
—
—
HS Chetty5
—
—
—
—
A Pillay5
—
—
—
—
Total
—
—
—
—
*Included in trade payables and accruals (refer note 28).
1
Group executives who are members of the Board of directors.
2
Includes voluntary severance package benefit.
3
Acted as an Exco member in the prior financial year.
4
Appointed as an Exco member during the prior financial year.
5
Appointed as an Exco member during the financial year.
6
Mr BL Kgomo passed away in July 2021.
The table below depicts the actual remuneration for the Transnet non-executive directors for the reporting year:
Other
Total
Total
Board member
Fees
payments
2023
2022
R 000
R 000
R 000
R 000
P Molefe (Chairperson)
1 329
—
1 329
1 329
LL Von Zeuner*
840
—
840
917
DC Matshoga
604
—
604
599
UN Fikelepi
729
—
729
699
GT Ramphaka*
475
—
475
699
FS Mufamadi
699
—
699
699
AP Ramabulana
612
—
612
599
ME Letlape
798
—
798
798
Total
6 086
—
6 086
6 339
*Resigned during the financial year.
120121
Annual financial statements
Notes to the annual financial statements
Notes to the annual financial statements
for the year ended 31 March 2023
38.
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’s performance for the year ended 31 March 2023 improved in certain areas compared to the prior year (revenue +0,6% and gearing improving
to 43,6%), in spite of various challenges and the current economic climate. These challenges negatively impacted performance and included flooding in
KwaZulu-Natal (KZN), power cuts across the country, the industrial strike in October 2022, interest rate hikes, and rising security incidents mainly fuel
theft, cable theft and vandalism of infrastructure and ultimately resulted in EBITDA reducing by 2,1% from the prior year.
Projections
The operational challenges faced by Transnet resulted in a significant deviation from the 2022/23 budget, causing a substantial loss and deviation
from the planned cash flows from operations. The Shareholder however provided support to Transnet through an equity injection to fund the unforeseen
flood damage suffered in the KZN region during April 2022 and fund the repairs of long-standing locomotives to return them to service (R5,8 billion in
the form of an ordinary share issuance).
The 2023/24 corporate plan depicts an improvement in financial performance as operations improve over time. Financial performance is projected
to stabilise in 2023/24 and accelerate in subsequent years.
Transnet will focus on improving cash generation to ensure no cash shortfalls are planned from operations after capital investment, and the planned
cash surplus will be used to partially repay loans.
Funding considerations
Transnet expects continued access to debt capital markets, primarily through a combination of its Domestic and Global Medium-Term Note (DMTN and
GMTN) programmes, development finance, and structured syndicated and bilateral long-term facilities to satisfy its funding requirements. The liquidity
position to date has improved for the current reporting year, which has reinforced the build-up of Transnet’s liquidity buffer. Looking ahead to the current
cash flow forecast (including funding initiatives), Transnet envisages a further improvement in the liquidity buffer towards the end of the 2023/24
financial year while looking to reduce debt to more sustainable levels.
In the current financial year, Transnet successfully completed a USD1 billion issuance under the GMTN programme which also resulted in Moody’s
improving Transnet’s ratings outlook from negative to stable. Transnet will continue to endeavor to raise funding on the strength of its financial position.
For the 31 March 2023 reporting year, Transnet achieved a CIC of 2,1 times. A number of loans require Transnet to maintain the CIC covenant at
a minimum of 2,5 times at 31 March and 30 September of each financial year. A CIC below 2,5 times constitutes a breach of the CIC loan covenant
on 11 loans with a total capital balance of R35 billion. The breach is an event of default.
On 21 April 2023, Transnet submitted waiver requests to each of the lenders requesting that they waive the triggered event of default. All the required
waivers from affected lenders relating to the CIC loan covenant breach have been received with all matters appropriately closed.
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.
39.
Events after the reporting period date
Debt service reserve account
In April 2023, Transnet invested R1,1 billion in a debt service reserve account, which is a restricted foreign cash account due to an arrangement with a
lender. The restrictions on this account are outlined in the agreement between the two parties.
Appointment of the new Transnet Board
In July 2023, four members of the previous Board were retired by rotation, with two members remaining. The new Board was thereafter appointed by the
Shareholder Minister, consisting of the chairperson Mr A Sangqu, Ms R Buthelezi, Mr M Debel, Mr B Jiya, Ms L Letsoalo, Dr PS Molefe, Prof FS Mufamadi,
Mr D Patel, Ms B Sedupane and Ms MP Zambane.
Settlement with Bombardier Transportation South Africa (Pty) Ltd – 2014 locomotive supply agreement
On the 24 August 2023 Transnet entered into an agreement with Bombardier Transportation South Africa (Pty) Ltd (BT) to settle the dispute pertaining
to the review application instituted by Transnet in respect of the 2014 locomotive supply agreement and to provide for the further delivery of the
remaining locomotives under the contract.
In terms of the agreement, BT will reimburse Transnet as follows:
•
Differential in baseline price of delivered locomotives– R181,6 million;
•
Finance costs associated with the additional portion of advance payments– R68,4 million; and
•
Variation orders associated with manufacturing and assembly facilities relocation– R218,1 million.
Transnet in turn will release withheld penalties of R92,4 million in favour of BT.
Transnet is positioned to take delivery of the undelivered locomotives over the next 3,5 years.
The financial outcome of the agreement is planned to be assessed by an independent reviewer whilst the review application shall proceed
notwithstanding the settlement agreement, albeit in a non-adversarial form. Transnet and BT shall file a joint affidavit motivating for the settlement
Annual financial statements
Notes to the annual financial statements
122
123
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.
Abbreviations and acronyms
Annual financial statements
Notes to the annual financial statements
124
125
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
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
Corporate informationNotes
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
Mr A Sangqu (Chairperson)
Ms R Buthelezi
Mr M Debel
Mr B Jiya
Ms L Letsoalo
Dr PS Molefe
Prof FS Mufamadi
Mr D Patel
Ms B Sedupane
Ms MP Zambane
Ms GT Ramphaka resigned in December 2022.
Mr LL Von Zeuner resigned in February 2023.
Mr AP Ramabulana, Ms UN Fikelepi, Ms ME Letlape, and
Ms DC Matshoga retired by rotation in July 2023.
The new Transnet Board was appointed/(re-appointed
2 members) in July 2023.
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
Annual financial statements
Notes to the annual financial statements
126
127
Notes
128
Annual financial statements
Notes to the annual financial statements