State-owned freight logistics group Transnet, which invested a record R31.8-billion last year, is planning to invest a further R33-billion in 2014/15 and says it has no intention, at this stage, of pulling back from its R307.5-billion Market Demand Strategy (MDS) despite the sluggish South African economy.

However, CEO Brian Molefe said last week that the group would moderate its spending should there be any sign that some of its key credit metrics were at risk of moving outside of internal thresholds, or ones set for it by the rating agencies.

The company’s rating had been downgraded by Standard & Poor’s, following the rating agency’s recent downgrade of South Africa, and Molefe revealed that the downgrade would force a repricing of about R8-billion of Transnet’s current debt, which would add a cost of about R41-million to future borrowings.

Transnet’s total borrowings stood at R90.4-billion, with R22.4-billion in new debt having been raised in 2013/14. It planned to raise a further R22-billion in the current financial year, mostly from the domestic bond market, as well as from development finance institutions and export credit agencies.

Speaking against the backdrop of a record profit of R5.2-billion, supported in part by a 12.8% rise in revenue to R56.6-billion, Molefe stressed that it saw no immediate need to pare down the MDS, which had been designed to modernise and expand South Africa’s harbours and rail and pipeline networks.

“The assets that we are procuring have a life of 50 years. So we are not procuring for this cycle of low growth – we are procuring for a much longer time [horizon].”

Molefe also stressed that the group’s gearing at 45.9% was below its 50% target, while its cash-interest cover of 3.7 times was above its three-times-cover limit.

“We are not about to bust our gearing ratios, our interest-cover multiple – if those are under threat, we will revise the MDS numbers down. So we are not going to borrow until the company’s bankrupt so that we can fund the MDS,” Molefe indicated.

Volumes were, however, below forecast and a rise in revenue had been made possible mainly through market-share gains. The group reported a 25.2% rise in volumes, underpinned by an increase in automotive and container volumes, with coal and iron-ore volumes falling by 1% and 3% respectively.

Coal export volumes fell to 68.2-million tons from 69.2-million tons in the previous year, owing to a decline in coal prices, a nine-day power disruption at the Richards Bay Coal Terminal and some industrial action on the coal corridor. Together, the strike and the power disruption lopped about three-million tons off the export figure.

The decline in iron-ore volumes, to 54.3- million tons, from 55.9-million tons, was attributed to production problems at Kumba Iron Ore. But iron-ore-related revenue was less affected, owing to the fact hat Transnet had tax-or-pay contracts with the iron-ore mines.

Transnet expected rail volumes to rise further as new locomotives were introduced, with a further 122 electric and diesel locomotives and 2 704 wagons expected to be added to the Transnet Freight Rail (TFR) fleet during the current financial year.

In addition, TFR was gearing up for the introduction of diesel and electric locomotives to arise from the so-called ‘10-64 programme’, with the R50-billion package having been awarded in March to consortiums led by China South Rail (CSR) Zhuzhou Electric Locomotive, Bombardier Transportation South Africa, General Electric (GE) South Africa Technologies and China North Rail (CNR) Rolling Stock South Africa.

CSR, which would supply 359 electric locomotives, and GE South Africa, which had been contracted to supply a further 233 diesel locomotives, would assemble the vehicles at Transnet Engineering’s facility in Koedoespoort, near Pretoria. Bombardier Transportation South Africa, which would supply 240 electric locomotives, and CNR, which would supply 232 diesel locomotives, would establish assembly facilities in Durban.

Molefe said that all 1 064 locomotives would be introduced to the general freight fleet by the end of 2018.

The group was also hoping to secure another multiyear wage settlement with its recognised unions, following a two-year deal which will expire early next year.

Molefe said the two-year deal, which allowed for increases of 8.5% in 2013/14 and 9% in 2014/15, had been above where the group had hoped to settle, but had also given much-needed certainty in the current unsettled labour climate.

Nevertheless, Transnet had still experienced industrial action at the Port of Ngqura, in the Eastern Cape, which was also associated with acts of violence, including attacks on the homes of some nonstriking employees.

Molefe reported that there had been a total of 32 petrol-bomb attacks on employee houses and cars during the action, which had a minimal impact on actual operations at the port.

Three National Union of Metalworkers (Numsa) members had been arrested after the company secured a court interdict, with one worker having been denied bail for being in possession of illegal firearms.

The key source of the grievance related to the use of labour brokers and Transnet reached a settlement with its recognised unions – of which Numsa was not one – to phase out the practice as from June.

Some striking casual employees had been given a chance to apply for permanent positions.